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Administrative flexibility

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One of the key aspects of the Commissioner’s role in the tax system is applying and explaining the law to taxpayers.  Generally, the law can be interpreted consistently with the policy intent.  However, in some cases the interpretation of the law (when applying ordinary statutory interpretation principles) may not accord with the policy intent.  This can tie up Commissioner and taxpayer resources in outcomes that are inconsistent with both parties’ practice and/or expectations.

The Commissioner currently has limited administrative flexibility to deal with such issues.  The Commissioner cannot ignore or not apply the law as interpreted by her.  This is because, as a matter of constitutional law, only Parliament has the ability to impose (or suspend) taxes.  While a legislative amendment can be sought to remedy the issue, this may not necessarily avoid the Commissioner and taxpayers having to commit resources to the issue.

Greater flexibility in limited circumstances

Providing the Commissioner with greater administrative flexibility in limited circumstances to make better use of Commissioner and taxpayer resources is an important goal in simplifying the tax system.

As a starting point for discussion, the proposal is that the Commissioner would be able to:

  • Apply a policy-based approach to small gaps in the tax legislation;
  • Deal pragmatically with legislative anomalies that are minor or transitory;
  • Address cases of hardship (inequity) at the margins; or
  • Deal with cases in which a statutory rule is difficult to formulate (meaning that the relevant legislation has failed to adequately deal with the particular situation).

There may also be a case for including an ability for the Commissioner to confirm an approach based on a long-standing established practice of both the Commissioner and taxpayers.  However, further analysis would be required of the potential boundaries of such an approach.

If such an approach were adopted, an issue would arise over whether the extension of administrative flexibility would be limited to situations that were taxpayer-favourable.  This would not seem necessary, as given the very limited nature of the criteria, it would be expected that the change would in practice be limited in this way.

Providing the Commissioner with significantly more discretionary power could be seen to undermine Parliament’s role in imposing taxes.  There is a possible risk of uncertainty or inconsistent treatment for taxpayers.  However, the government considers that if the proposal is limited in the way suggested these concerns should not arise.

Example

A drafting error exists in a specific provision which prevents taxpayers from using different calculation methods for determining their foreign investment income when they have more than one account in the same investment.  This unintended restriction is contrary to the policy intent, which was to allow taxpayers to use different methods in certain circumstances.  The policy intent and desired outcome are clear.  A bill before Parliament provides for the drafting error to be remedied retrospectively.

The Commissioner would be able to deal pragmatically with the transitory legislative anomaly by allowing taxpayers to use different calculation methods.

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