Terms of reference
On Thursday 1 August 2019, the Senate Economics Legislation Committee (the committee) resolved to inquire into the performance of the Inspector‑General of Taxation, with particular reference to:
whether the accountability framework the Inspector‑General operates within needs to be amended or strengthened;
how the Inspector-General conducts its investigations into the Australian Taxation Office;
what safeguards exist to ensure the independence of the Inspector‑General;
the complaints management policies and practices of the Inspector‑General;
the protections afforded to whistleblowers who disclose information to the Inspector‑General; and
This resolution of the committee was made in compliance with standing order 25(2)(a) of the Senate.
About the inquiry
On Wednesday 10 April 2019, during the committee's 2019‑20 Budget Estimates hearing, Senator Rex Patrick asked the then Acting Inspector‑General of Taxation, Mr Andrew McLoughlin, whether a former employee of the Australian Taxation Office (the ATO), Mr Richard Boyle, had lodged a complaint with his office regarding the ATO's use of garnishee notices during November 2017.
In responding to Senator Patrick's question, Mr McLoughlin advanced a public interest immunity claim, arguing that by answering the senator's question, confidence in the Inspector‑General of Taxation and Taxation Ombudsman's (IGTO) anonymous complaints system may be undermined.
The committee resolved to consider the issue of public interest immunity at a further private meeting outside of the estimates process, and to consider undertaking a self‑referred inquiry into the performance of the IGTO.
Following the opening of the 46th Parliament on Tuesday 2 July 2019 and the appointment of new members to the committee, on Thursday 1 August 2019 the committee resolved to inquire into the performance of the IGTO and report to the Senate on 2 December 2019.
The committee advertised the inquiry on its website and invited interested entities and individuals to make submissions until 30 August 2019. Specific invitations seeking submissions were also sent to the Department of the Treasury (the Treasury), the ATO, and the IGTO.
On 28 November 2019, the committee resolved to extend the reporting date from 2 December 2019 to 27 February 2020.
On 26 February 2020, the committee resolved to extend the reporting date from 27 February 2020 to 20 March 2020.
On 14 March 2020, the committee resolved to extend the reporting date from 20 March 2020 to 24 April 2020.
On 21 April 2020, the committee resolved to extend the reporting date from 24 April 2020 to 14 May 2020.
On 11 May 2020, the committee resolved to extend the reporting date from 14 May 2020 to 15 June 2020.
The committee received 15 submissions from the submitters listed below. Those submissions not listed as confidential have been published to the committee's website.
Australian Small Business and Family Enterprise Ombudsman
Inspector-General of Taxation and the Taxation Ombudsman
Corporate Tax Association
Chartered Accountants Australia and New Zealand
Institute of Public Accountants
Blackwater Treatment Systems
The committee undertook two public hearings for the inquiry. The names of witnesses who appeared at each hearing can be found at Appendix 3.
History of the Inspector-General of Taxation and Taxation Ombudsman
Proposal to create an independent Inspector-General of Taxation
In the 2001 election statement Putting Australia's Interests First, the former prime minister, Mr John Howard, announced that a re-elected coalition government would create the Inspector-General of Taxation (the Inspector‑General) to strengthen the advice given to government in respect to matters of tax administration and process. The position was to report to the Parliament through the Treasurer and would provide a new source of independent advice on taxation administration and policy.
The Howard government believed that there was scope to improve the responsiveness of the Australian tax system to legitimate concerns of taxpayers arising from their experience with tax administration. The tax system had been the subject of continuing complaints regarding delays in processing, the provision of inconsistent advice, the lack of certainty in taxation outcomes, and compliance burdens.
The Inspector‑General was envisaged to function as an independent statutory authority examining problems in the administrative framework of the tax system and to bring them expeditiously to the attention of the government. The role was also envisaged to act as an advocate for all taxpayers, including Australian businesses, and provide an avenue for more effective conflict resolution than existed at the time.
To inform the design of the Inspector‑General, in May 2002 the Howard government issued a consultation paper outlining the original features of the proposed office, and invited submissions from interested parties. The key original features of the role were as follows:
The Inspector‑General would be an independent adviser to the government on the tax administration system, with a focus on possible improvements to the operation of the system, particularly from the perspective of taxpayer compliance.
The Inspector‑General would investigate tax administration issues and make recommendations to help the Commissioner of Taxation (the Tax Commissioner) and the government improve the operation of the tax administration system.
To undertake the role, the Inspector-General would be provided broad investigative powers to access information, but would be bound by confidentiality in respect of any taxpayer information obtained in the course of an investigation.
The Inspector-General would be established as a statutory authority in the Treasury portfolio, with independence from the Treasury and the ATO.
The Inspector-General would report annually to the Parliament through the Treasury ministers.
The Inspector-General would not have a direct role in handling complaints from individual taxpayers, which would continue to be dealt with by the Commonwealth Ombudsman.
Community response to the government's proposal
Evidence presented to an inquiry undertaken by the Senate Economics Legislation Committee in 2002 indicated that there was strong support for the creation of a new statutory office to review tax administration, and to report to the government with recommendations for improving tax administration for the benefit of all taxpayers. Further, witnesses indicated that establishment of an Inspector‑General was considered a valuable addition to the taxation governance framework, and complemented the existing functions of the Board of Taxation, the Commonwealth Ombudsman, and the Auditor‑General.
Initial powers of the Inspector-General
The Inspector‑General was provided with strong information gathering powers to obtain any information relevant to a review already underway or being contemplated. Officers of the ATO were authorised to provide information to the Inspector‑General upon request, and could be compelled to provide information pursuant to a formal notice. Apart from this power to compel disclosure of information, the Inspector-General had no power to direct the Tax Commissioner or officers of the ATO.
After completion of a review, the Inspector‑General was required to transmit a report to the minister, setting out the subject and outcome of the review, as well as any recommendations thought appropriate to improve the system. Importantly, however, the Inspector‑General was not authorised to publicly release its reports directly or independently.
Upon commencement in 2003, the Inspector‑General did not investigate complaints concerning individual taxpayer cases, with the Commonwealth Ombudsman retaining that role.
Expansion of the Inspector-General's role
In 2014 support was received to expand the scope of the Inspector-General's role into two key areas:
the Tax Practitioners Board was included within the Inspector‑General's jurisdiction; and
the Commonwealth Ombudsman's tax complaint handling function was transferred to the Inspector‑General.
The rationale behind expanding the role of the Inspector‑General was outlined in the amending bill's EM, which stated:
Issues surrounding taxation laws can be complex and specialised. This complexity is compounded as the administration of the taxation laws is scrutinised by both the Inspector‑General and the Ombudsman. By concentrating expertise about taxation administration issues, taxpayers are provided with a dedicated body to investigate and handle complaints about all taxation matters.
On 19 March 2015, legislation to transfer the tax complaint service function was enacted by the Parliament. This transfer served the additional benefit of enabling the Inspector‑General to see trends in systemic tax administration concerns and to self‑initiate systemic investigations in a timely fashion. In accordance with the amending legislation, the Inspector‑General's expanded functions were to investigate:
complaints made by entities who were subject to actions taken by tax officials which related to administrative matters under a taxation law;
other actions taken by tax officials relating to administrative matters under a taxation law;
systems established by the ATO or the Tax Practitioners Board to administer taxation laws; and
systems established by taxation laws, but only to the extent that the systems deal with administrative matters.
The amending legislation also replaced the Inspector‑General's review, information gathering, and reporting powers with those of the Commonwealth Ombudsman. This was implemented by repealing the pre‑existing powers and incorporating into the Inspector-General of Taxation Act 2003 (the IGT Act) provisions of the Ombudsman Act 1976 (the Ombudsman Act).
Importantly, although the role of the Inspector‑General was significantly expanded, it was not provided with the Commonwealth Ombudsman‘s powers to receive and investigate public-interest disclosures under the Public Interest Disclosure Act 2013 (PID Act).
The Inspector-General's enabling legislation
The current functions and powers of the Inspector‑General of Taxation and Taxation Ombudsman (IGTO) are set out in the IGT Act, as amended. As discussed in the prior section, in 2015 amendments to the IGT Act expanded the role of the IGTO to include various responsibilities that were, until then, administered by the Commonwealth Ombudsman. This was done through amendments to the IGT Act which referred to certain provisions within the Ombudsman Act. The IGT Act is separated into 5 parts and 43 sections, with its key aspects discussed below.
Objectives of the Act
Per section 3 of the IGT Act, the IGTO's objects are to:
improve the administration of taxation laws for the benefit of all taxpayers, tax practitioners and other entities;
provide independent advice to the government on the administration of taxation laws;
investigate complaints by taxpayers, tax practitioners or other entities about the administration of taxation laws; and
investigate administrative action taken under taxation laws, including systemic issues, that affect taxpayers, tax practitioners or other entities.
Functions of the Inspector-General
Per section 7 of the IGTO Act, the functions of the IGTO are:
to investigate action affecting a particular entity that:
is taken by a tax official; and
relates to administrative matters under a taxation law; and
is the subject of a complaint by that entity to the IGTO;
to investigate other action that:
is taken by a tax official; and
relates to administrative matters under a taxation law;
to investigate systems established by the ATO, or Tax Practitioners Board, to administer taxation laws, including systems for dealing or communicating:
with the public generally; or
with particular people or organisations in relation to administrative matters under those laws;
to investigate systems established by taxation laws, but only to the extent that the systems deal with administrative matters;
to investigate action that is the subject of a part of a complaint:
transferred to the Inspector‑General by the Ombudsman under paragraph 6D(4)(b) of the Ombudsman Act; or
that the Ombudsman advises, under paragraph 10(1)(b) of the IGT Act, does not need to be transferred under subsection 10(1) of the IGT Act; and
to report on those investigations.
However, these functions do not include investigating:
rules imposing or creating an obligation to pay an amount under a taxation law; and
rules dealing with the quantification of such an amount.
Self-initiated and directed investigations
Per section 8 of the IGT Act, the IGTO may conduct certain investigations on his or her own initiative. For example, the IGTO may conduct an investigation into a systemic issue that has been drawn to his or her attention by taxpayers, tax practitioners, the Auditor‑General or the Ombudsman.
If directed by the minister, the IGTO must also conduct investigations into systems established by the ATO and the Tax Practitioners Board to administer taxation laws, as well as systems established by taxation laws, but only to the extent that they deal with administrative matters.
Although not required to comply with such a request, the IGTO may be requested to conduct certain investigations by:
the Tax Commissioner or the Tax Practitioners Board;
a resolution of either house, or of both houses, of the Parliament; and
a resolution of a committee of either house, or of both houses, of the Parliament.
Per section 9 of the IGT Act, the IGTO may, in his or her discretion, decide not to conduct an investigation into a complaint, or, if he or she has started such an investigation, decide not to continue investigating the action complained, if the IGTO is of the opinion that:
the complaint is frivolous or vexatious or was not made in good faith;
the complainant does not have a sufficient interest in the subject matter of the complaint;
an investigation, or further investigation, of the action is not warranted having regard to all the circumstances;
the complainant has not yet raised the complaint with the Commissioner or the Tax Practitioners Board;
the action came to the complainant’s knowledge more than 12 months before the complaint was made; or
the complainant has not exercised a right to cause the action to which the complaint relates to be reviewed by a court or by a tribunal constituted by or under a law of the Commonwealth.
Reporting requirements of the Inspector-General
Per section 18 of the IGT Act, after completing an investigation, the IGTO may make a written report to the minister:
identifying a taxation law under which the action being investigated was taken;
setting out any recommendations for how that taxation law might be improved; and
setting out the reasons for those recommendations.
The minister must cause a copy of the report to be made publicly available before the end of the 25th sitting day of the House of Representatives after the day the minister receives the report.
Per section 38 of the IGT Act, if the IGTO forms the opinion either before, during, or after conducting an investigation that a person who is, or was, a tax official has engaged in misconduct, and the evidence is of sufficient weight to justify the IGTO doing so, the IGTO must report the evidence to either the minister or the Tax Commissioner, depending on the circumstances.
Per section 41 of the IGT Act, the annual report prepared by the IGTO for the minister under section 46 of the Public Governance, Performance and Accountability Act 2013, must include, amongst other things:
details of any directions given by the minister
the number of complaints received; and
the number of investigations started and completed.