Finance Minister Mathias Cormann has announced a revised approach to the way the Australian Tax Office (ATO) treats administrative errors for small business tax cases, which will be implemented by 30 November 2019.
Changes will be made to the Compensation for Detriment caused by Defective Administration (CDDA) Scheme – which is a mechanism aimed at reimbursing those who have suffered economic loss, personal (including mental) injury or property damage due to mistakes made by the ATO (and other federal government agencies).
By the end of this month, taxpayers and practitioners can expect that small businesses will have greater confidence that their concerns are properly considered when defective administration occurs – which includes wrongdoing in actions or inaction.
A review into the CDDA was undertaken, after concerns were raised that there was a lack of transparency and accessibility for small business in their dealings with the ATO. The review made 12 recommendations to improve the scheme, with the government agreeing to all recommendations in full, or part or in principle. You can read the full response here, or read below to find out what you can expect in the coming months.
What can practitioners expect to see in the revised CDDA scheme?
While the scheme is set up for all taxpayers, the changes specifically address the needs of small businesses, with the objective of making it simpler for them to apply for compensation.
The scheme will continue to be in the form of discretionary compensation, meaning that there is no automatic payment. However, fundamental changes to guidance, procedures (including timeframes, supporting evidence and the application process), decision-making and communication will occur.
More specifically the changes purport to include:
- A more comprehensive CDDA manual will be developed and communicated by the ATO that will:
- Outline a new approach to categorising claims, to allow for their better management
- Enhance communication with taxpayers to improve transparency
- Review rights to enable fairer procedures when reviewing decisions, and
- In certain cases, ensuring taxpayers have the ability to engage independent reviewers.
- More guidance material will be available to practitioners to increase their understanding of the small business environment in relation to the CDDA Scheme.
- Guidance for case decision-makers will be updated to reflect the relevant standard of proof.
Procedures and decision-making
- Clearer procedures that take into account a small business’s financial and personal capacity to respond to a review, audit or compliance process.
- Procedures that deal with a request to appeal decision reviews.
- No removal of confidentiality agreements from deeds of release.
- More transparency, openness and accountability in decision-making, with the ability to escalate appropriate, sensitive and complex matters to an external reviewer or senior ATO official or executive.
- A comprehensive and ongoing communication program to raise awareness of the CDDA Scheme among small business, tax professionals and their professional bodies. There will also be more assistance for those enquiring about ATO compensation including:
- A hotline phone number, and
- Email address with direct access to decision-makers.
It’s expected that implementation of the changes will be monitored over the next twelve months.
We support the findings of the review and the response made by the government – any move to make the management of the taxation affairs of small businesses simpler and clearer is welcome, although we would still recommend that great care and caution continue to be exercised in such dealings.
If you would like further information in regards to applying for CDDA contact your BDO adviser.