BILLS DIGEST NO. 114, 2017–18              15 June 2018

Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018

Joseph Ayoub
Economics Section 

Date introduced: 7 February 2018

House:  House of Representatives

Portfolio: Treasury

Commencement: On the day after Royal Assent.

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill’s home page, or through the Australian Parliament website.

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the Federal Register of Legislation website.

All hyperlinks in this Bills Digest are correct as at June 2018.

The Bills Digest at a glance

Purpose of the Bill

•       The purpose of the Bill is to amend the Taxation Administration Act 1953 and the Income Tax Assessment Act 1997 to introduce:

–      criminal offences for the production, distribution, possession and use of electronic sales suppression tools (ESS tool) which are used to falsify tax records created by electronic point of sale systems and

–      administrative penalties corresponding to the criminal offences and

–      reporting obligations on entities that provide a courier or cleaning service and engage other entities to perform a courier or cleaning service on their behalf.

Background

•       The measures contained in the Bill were announced by the Government in the 2017–18 Federal Budget and are in response to the recommendations made by the Black Economy Taskforce in its interim report. The recommendations include:

–      an immediate ban on sales suppression technology and

–      requiring an entity that provides cleaning or courier services to report information relating to the contractors it engages to carry out those services.

Stakeholder concerns

•       Members of the tax profession generally support the measures contained in the Bill because the purpose of the measures is to prevent tax fraud and evasion.

•       There are concerns that a person may inadvertently commit a criminal offence for the possession of an ESS tool. It has been suggested by a stakeholder that the Australian Taxation Office could provide taxpayers with certainty by certifying electronic point of sale systems or the manufacturers of those systems.

•       The reporting obligation imposed on courier and cleaning services is a compliance mechanism that allows the Commissioner of Taxation to gather information in order to data match and audit taxpayers. While it imposes an additional obligation on businesses to report relevant information, practically it may not be as effective as imposing a withholding tax on the business making the payment to the contractor for cleaning or courier services.

•       Following the introduction of the Bill, stakeholders expressed concerns about the application of the reporting requirements to entities that provide limited courier or cleaning services. The Government has attempted to address these concerns by moving an amendment to the Bill that exempts entities from the proposed reporting requirements where the total amount of payments the entity receives for courier or cleaning services are less than 10 per cent of the entity’s GST turnover.

Key elements

•       Under Schedule 1 of the Bill, an entity will commit a criminal offence if it produces, supplies, possesses or uses an ESS tool.

•       The offence for the production or supply of an ESS tool extends beyond Australia’s geographical jurisdiction, which means that overseas suppliers can be convicted of an offence.

•       The maximum penalty for each offence is:

–      500 penalty units (currently $105,000) for the possession of an ESS tool

–      1,000 penalty units (currently $210,000) for using an ESS tool to alter a tax record

–      5,000 penalty units (currently $1.05 million) for manufacturing or supplying an ESS tool.

•       The offences are ones of strict liability, which means that a person can be convicted without the need to prove fault such as intention, recklessness or negligence.

•       The following defences are available in limited circumstances:

–      the general defence for an honest mistake of fact where, for example a person inadvertently possess an ESS tool but honestly believes it is not such a tool and

–      where a person possesses, manufactures or supplies an ESS tool for the purpose of preventing or deterring tax evasion or enforcing a taxation law.

•       In the absence of criminal proceedings, corresponding administrative penalties for such offences can be imposed by the Commissioner of Taxation.

•       Under Schedule 2 of the Bill, an entity that provides cleaning or courier services, has an Australian Business Number (ABN) and engages another entity to provide cleaning or courier services on its behalf (excluding an employee) must report the following information to the Australian Taxation Office:

–      the ABN, name and address of the entity it engages

–      the gross amount paid to the entity for the financial year

–      the total GST included in the gross amount paid to the entity and

–      the total payments made to contractors in the financial year.

•       As noted above, entities are exempt from the proposed reporting requirements under Schedule 2 to the Bill where the total amount of payments the entity receives for courier or cleaning services are less than 10 per cent of the entity’s GST turnover.

Key issues

•       One of the key issues is whether criminalising the production, distribution, possession and use of ESS tools significantly deters such behaviour. As discussed in the digest, the Organisation for Economic Co-operation and Development considers that criminal offences should be an element of a multipronged approach to preventing tax fraud and evasion through the use of ESS tools.

•       Another issue is whether it is appropriate that the criminal offences are ones of strict liability where significant financial penalties can be imposed.

Purpose of the Bill

The purpose of the Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018 (the Bill) is to amend:

•       the Taxation Administration Act 1953 (TAA) to introduce specific criminal offences for the production, distribution, possession and use of electronic sales suppression tools (ESS tools) used to manipulate or falsify tax records created by electronic point of sale systems by:

–      inserting a definition of electronic sales suppression tool and

–      inserting specific criminal offences for the production, distribution, possession and use of an ESS tool.

•       the Income Tax Assessment Act 1997 (ITAA97) and Schedule 1 of the TAA to insert administrative penalties corresponding to the criminal penalties proposed under item 2 of Schedule 1 to the Bill and

•       amend Schedule 1 of the TAA to introduce reporting obligations on entities that have an Australian Business Number (ABN) and provide a courier or cleaning service and engage other entities to perform a courier or cleaning service on behalf of the first entity.

Structure of the Bill

This Bill is divided into two Schedules.

Schedule 1 of the Bill amends the TAA and the ITAA97 to insert specific criminal offences and administrative penalties for the production, distribution, use or possession of ESS tools.

Schedule 2 amends Schedule 1 to the TAA to impose a reporting obligation on entities that have an ABN, provide cleaning or courier services and engage other entities to provide courier or cleaning services on their behalf.

Background

Both measures contained in the Bill were announced in the 2017–18 federal budget[1] and are part of the Government’s response to the Interim Report of the Black Economy Taskforce.[2]

The Taskforce is chaired by Michael Andrew, the current Chair of the Board of Taxation. The Taskforce was established in December 2016:

… to develop a whole of government policy framework involving new proposals to tackle black economy activity.[3]

The Taskforce’s Interim Report was released publicly on 9 May 2017 (Budget night) and additional policy ideas were released in August 2017.[4] The Taskforce provided the Black Economy Taskforce: final report—October 2017 (Final Report) to the Government in October 2017, which was publicly released with the 2018–19 federal budget.[5] The release was also accompanied by the Government’s response Tackling the Black Economy: Government Response to the Black Economy Taskforce Final Report.[6]

In its Interim Report, the Taskforce’s initial recommendations included among other things:

•       an immediate ban on sales suppression technology and

•       extending the taxable payments reporting system (TPRS) to two high risk sectors—cleaning and courier services.[7]

On 23 October 2017 the Minister for Revenue and Financial Services, Kelly O’Dwyer (the Minister) released the Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2017 as an Exposure Draft for public consultation.[8] While the Bill largely reflects the Exposure Draft, some changes that have been made are discussed below under key issues and provisions.

According to the Taskforce, the ‘black economy’:

… refers to businesses and individuals who operate outside the tax and regulatory system. Other terms used include: the shadow economy, cash economy and underground economy. Businesses and individuals may entirely avoid reporting activities, or they may deliberately underreport income in order to evade their obligations. The activities themselves would otherwise be legal, but there may be complex linkages with illegal activities (for example, money laundering).[9]

The Taskforce considers that black economy activities can have the following negative effects:

•       undermine community trust in the administration of the tax system

•       create an unfair commercial environment which penalises businesses and individuals who comply with their obligations

•       enable and entrench the exploitation of vulnerable workers

•       undermine tax revenue and

•       enable abuse of the welfare system.[10]

In 2012, the Australian Bureau of Statistics (ABS) estimated that ‘underground production’ or the ‘cash economy’ was equivalent to 1.5% of Australia’s Gross Domestic Product (GDP) which, according to the Taskforce is approximately $25 billion today.[11]

KPMG has recently estimated the total annual aggregate tax gap including losses to Pay As You Go (PAYG) income tax, GST and self-assessed personal income tax to be $5.8 billion.[12]

In its Final Report, the Taskforce considered that the black economy is larger than estimated by the ABS in 2012 and could be as large as three per cent of GDP—in 2015–16 this equated to $50 billion.[13]

The Taskforce considered that the black economy is most prevalent amongst businesses that have regular access to cash because:

Owners of these types of businesses deal directly with their customers and can avoid their taxation and other obligations by underreporting income, especially by understating cash receipts, and paying workers cash in hand. The higher share of labour costs as well as the high number of small value transactions make black economy participation easier.[14]

Further information on the black economy, including the drivers, consequences and measures announced in the 2018–19 budget aimed at addressing the black economy can be found in the Parliamentary Library Budget Review 2018–19 under the heading ‘Targeting the black economy’.[15]

Committee consideration

Senate Standing Committee for the Scrutiny of Bills

The Senate Standing Committee for the Scrutiny of Bills (Scrutiny Committee) questioned the appropriateness of the following aspects of the Bill:

•       the application of strict liability to offences with maximum penalties of 500 and 5,000 penalty units and

•       the inclusion of offence-specific defences, which impose an evidential burden on a defendant.[16]

The Scrutiny Committee sought further information from the Minister on these matters.[17]

The Scrutiny Committee did not raise any concerns regarding Schedule 2 of the Bill.

The Scrutiny Committee’s considerations and the Minster’s response are discussed in greater detail under key issues and provisions.

Senate Standing Committee for the Selection of Bills

The Senate Standing Committee for the Selection of Bills recommended that the Bill not be referred to a committee for inquiry.[18]

Policy position of non-government parties/independents

At the second reading stage of the Bill members of the Australian Labor Party (ALP) supported the passage of the Bill,[19] but also called on the Government to address other areas of the black economy including phoenixing activity engaged in by company directors.[20] For example, Andrew Leigh MP (Shadow Assistant Treasurer) stated:

The measures in this bill are unexceptional. They deal with the use of electronic sales suppression tools, prohibiting their production, distribution and possession to incorrectly keep tax records. The measures in this bill require entities having an ABN providing courier or cleaning services to report to the Australian Taxation Office information about transactions that involve engaging other entities to undertake those courier or cleaning services for them. But the measures missing from this bill are the critical ones. We need action to crackdown on dodgy phoenix directors. While the government is unwilling to crackdown on dodgy phoenix directors, it isn't taking the critical action which the experts recognise is needed.[21]

Other non-government parties and independents do not appear to have expressed a particular view on the Bill.

Position of major interest groups

At the time of writing, Treasury had not yet publicly released the submissions on the Exposure Draft, however a limited number of stakeholders have made their submissions publicly available or have otherwise publicly expressed a view on different aspects of the Bill.

From the submissions that are available, the measures proposed in the Bill appear to have the support of the tax profession, including from bodies such as Tax & Super Australia and The Tax Institute.[22] While those bodies have expressed support for the measures as reflected in the Exposure Draft, BDO Australia has expressed broad support for a ban on sales suppression technology and the extension of the TPRS.[23] Chartered Accountants Australia and New Zealand (CAANZ) supports the ban of sales suppression technology.[24]

Financial implications

Schedule 1

According to the Explanatory Memorandum to the Bill, Schedule 1 of the Bill is expected to have an unquantifiable gain to receipts over the forward estimates period.[25]

Schedule 2

The 2017–18 Budget stated that extending the TPRS to contractors in the cleaning and courier service would:

•       have a gain to revenue of $318.0 million in the forward estimates period and

•       the underlying cash receipts impact of the measure would be $362.0 million over the forward estimates period.[26]

However, the gain in revenue has subsequently been revised down and it is now expected, as stated in the Explanatory Memorandum, that this measure will result in tax receipts of $132 million over the forward estimates period, which includes an estimated increase of $56 million in goods and services tax receipts.[27]

Statement of Compatibility with Human Rights

As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.[28]

In particular the Government considers:

•       Schedule 1 of the Bill is compatible with human rights as it does not engage any applicable rights or freedoms[29]

•       Schedule 2 of the Bill engages the prohibition on arbitrary or unlawful interference with privacy contained in Article 17 of the International Covenant on Civil and Political Rights (ICCPR).

However, the Government considers that the Bill is consistent with Article 17 of the ICCPR on the basis that its engagement of the right to privacy will neither be unlawful nor arbitrary.[30]

Parliamentary Joint Committee on Human Rights

The Parliamentary Joint Committee on Human Rights (Human Rights Committee) noted that the Bill engages the right to privacy.[31] However, the Human Rights Committee’s primary concern was the impact of the imposition of strict liability on the presumption of innocence.

The Human Rights Committee noted that the right to the presumption of innocence is engaged by the Bill because strict liability offences allow for the imposition of criminal liability without having to prove fault.[32] The Human Rights Committee observed:

Strict liability offences will not necessarily be inconsistent with the presumption of innocence provided that they are within reasonable limits which take into account the importance of the objective being sought and maintain the defendant's right to a defence.[33]

Accordingly, the Human Rights Committee expects that the statement of compatibility with human rights in the Explanatory Memorandum will provide an assessment of whether the limitation on the presumption of innocence is:

•       in pursuit of a legitimate objective

•       rationally connected to that objective and

•       a reasonable, necessary and proportionate means to achieving that objective.[34]

In this regard, the Human Rights Committee sought the advice of the Treasurer regarding:

•       whether the strict liability offences are aimed at achieving a legitimate objective for the purposes of human rights law

•       how the measure is effective to achieve (that is, rationally connected to) that objective and

•       whether the limitation on the right to be presumed innocent is proportionate to achieve the stated objective.[35]

In response, the Minister advised that she did not accept that the Bill engaged and limited the right to the presumption of innocence as the prosecution would still need to ‘prove all of the physical elements to the offence before a court will impose any criminal liability’, a view that was rejected by the Committee.[36]

The Minister further advised:

•       deterring the production, use and distribution of tools used to manipulate or falsify electronic point of sale records to facilitate tax evasion is a legitimate objective for the purposes of human rights law because such tools serve no legitimate function other than to facilitate tax evasion

•       applying strict liability to the offences ‘substantially improves the effectiveness of the prohibition on electronic sales suppression tools’ as it acts as a ‘significant and real deterrent’ to the production and supply of such tools, and

•       the strict liability offences are appropriate and proportionate because the principal function of an electronic sales suppression tool is to facilitate tax evasion; there is no reason for an entity to produce or supply such a tool. Further, the applicable defences act as safeguards where an entity is acting to prevent or deter tax evasion.[37]

Based on the information provided to it, the Committee considers that the strict liability offences are likely to be compatible with the presumption of innocence.[38]

Key issues and provisions

Schedule 1—Criminal Offences: electronic sales suppression tools

Item 2 of Schedule 1 to the Bill introduces proposed Subdivision BAA into Division 2 of Part III of the TAA, which creates specific offences for the production, supply, possession or use of ESS tools. Proposed Subdivision BAA makes it unlawful to:

•       manufacture, develop or publish an ESS tool[39]

•       make a supply of or make available for use an ESS tool or a right to use such a tool; or provide a service to an entity that involves the use of such a tool[40]

•       acquire, possess, or have control of an ESS tool or a right to use an ESS tool where the person is required to keep or make a tax record[41]

•       keep, alter or make a tax record using an ESS tool, or prevent a tax record being kept, altered or made using an ESS tool, where the person is required to keep or make a tax record.[42]

The Explanatory Memorandum notes that while there are existing penalty provisions under the tax laws and criminal offences under the Criminal Code Act 1995 (Criminal Code), these provisions do not adequately capture or penalise the conduct that the Bill proposes to address—the production, distribution, use and possession of ESS tools.[43] In particular:

•       the tax laws contain penalties relating to keeping tax records and tax evasion which may apply to entities that use ESS tools. However, the Explanatory Memorandum considers that these penalties are not high enough to adequately reflect the seriousness of using an ESS tool[44]

•       the Criminal Code contains offences relating to forgery and providing false documents to the Commonwealth which can be punishable by imprisonment for up to ten years. However, according to the Explanatory Memorandum, such offences require either an intention that the device will be used to commit an offence of forgery or only apply to ‘Commonwealth documents’. It is considered that electronic point of sale records are generally not Commonwealth documents.[45]

Under section 8T of the TAA it is an offence to incorrectly keep records with the intent of misleading the Commissioner.[46] The maximum penalty for this offence is 50 penalty units ($10,500) or imprisonment for a period not exceeding 12 months for a first offence.[47] In this case, conviction under this provision requires the prosecution to establish fault.

Under subsection 8L(1) of the TAA a person commits an offence if among other things, the person is required by a taxation law to keep any accounts, accounting records or other records and the records kept do not correctly record and explain the matters, transactions, acts or operations to which they relate. An offence under section 8L of the TAA is an offence of absolute liability.[48] The maximum penalty for incorrectly keeping records is 20 penalty units for a first breach and 40 penalty units for a second or subsequent breach.[49] The Bill seeks to prevent tax evasion and fraud through the use of ESS tools by comprehensively criminalising a range of activities that may otherwise fall outside the scope of the existing laws, impose higher penalties, or place a greater burden on the prosecution to establish because the offences require fault to be established.

Tax evasion, fraud and avoidance

The common meaning of ‘tax avoidance’ relates to practices which seek to circumvent or significantly reduce tax obligations owed to the Commonwealth (some prohibited by law, some legal). Courts in Australia, however, have made a semantic distinction between tax avoidance and tax evasion:

•       tax avoidance involves using (or attempting to use) lawful means to reduce tax obligations

•       tax evasion involves using unlawful means to escape payment of tax.[50]

Whilst the courts have been clear on the difference between tax avoidance (legal) and tax evasion (illegal), popular commentary often uses a range of different terms such as ‘tax minimisation’, ‘tax evasion’, ‘tax planning’ and ‘tax avoidance’ to refer to any and all attempts to reduce taxation (both legal and illegal) and therefore conflates and confuses the two legal concepts of tax avoidance (legal) and tax evasion (illegal).

Schedule 1 to the Bill creates specific criminal offences for what would otherwise likely be tax evasion or fraud.

Sales suppression technology

Historically, sales suppression was generally achieved by ‘skimming’ cash receipts that an entity received for goods or services. An entity may have retained two accounting ledgers—one for the purposes of their income tax obligations and another which showed the actual value of the business which could be relied upon if the business sought finance or wished to sell. This type of tax evasion could generally be achieved because cash is fungible and untraceable.[51]

It is now apparent that cash is no longer necessary to successfully underreport income; sales suppression technology now enables businesses to misreport their income regardless of whether the purchase is made by cash or card.[52] As noted in CAANZ’s submission to the Taskforce:

SST [sales suppression technology] has the potential to turn what used to be fraud at an individual level (i.e. ‘two sets of books’) into a much broader, systemic problem. A 2013 OECD report indicated that SST can result in significant loss of revenue, for example:

· Canadian Restaurant and Food Services Association estimated suppressed sales in the restaurant sector could add up to nearly CAD 2.4 billion for 2009.
· Quebec tax losses estimated at CAD 417 million for 2007-2008.
· Sweden recovered EUR 150 million in 2,000 audits over 4 years.
· In South Africa EUR 22 million was expatriated in a single case.
· In Norway, a single case involved EUR 7 million under-reported.[53]

The Organisation for Economic Co-operation and Development (OECD) notes that electronic sale suppression technology is used to alter the evidence of a transaction in a point of sale system (POS system) regardless of whether cash or electronic payment methods are used. The two main electronic sales suppression tools are:

•       Phantomware—installed on the POS system to allow the user to alter sales data that is recorded

•       Zappers—external devices (such as a computer program stored on a USB or accessed online) that can be connected to the POS system and allow for the manipulation of sales records.[54]

As explained in the Explanatory Memorandum to the Bill, the records made by POS systems are an important source of information for auditors to check taxation and other obligations have been complied with.[55] However, this information is easily manipulated by sales suppression technology which can be very difficult for auditors to detect.[56] Similarly, CAANZ highlighted that the technology ranges in sophistication from an ESS tool that allows a product to be changed from an expensive product to a cheap product, to:

The more sophisticated programs also correlate the income skimmed to business inputs and adjust wastage and cash wages to really throw auditors off the track.[57]

Meaning of electronic sales suppression tool

The offences under proposed Subdivision BAA rely on the definition of electronic sales suppression tool under proposed section 8WAB.

Item 1 of Schedule 1 to the Bill inserts a definition of electronic sales suppression tool into subsection 995-1(1) of the ITAA97 which is defined by reference to proposed section 8WAB of the TAA. The definition will also be relied on under Schedule 1 of the TAA for the proposed administrative penalties in item 3 of Schedule 1 of the Bill—Schedule 1 of the TAA relies on defined terms in the ITAA97.[58]

The defined term is important because it is a critical element of the offences created under proposed Subdivision BAA. The defined term’s importance is further elevated because the offences created are ones of strict liability. Unlike other offences that require fault elements to be established such as intention, recklessness or negligence, it is only necessary to show that the entity has satisfied the physical elements of the offence.[59] This means that once the prosecution has established that something is an ESS tool, it is then only necessary to establish that an entity has manufactured, distributed, possessed or used an ESS tool as a matter of fact, irrespective of the entity’s intention.

Under proposed section 8WAB, electronic sales suppression tool means a device, software program or other thing, or any part or combination of such things that:

•       is capable of falsifying, manipulating, hiding, obfuscating, destroying or preventing the creation of a record:

–      an entity is required by a taxation law to keep or make and

–      such a record is, or would be created by a system that is or includes a POS system and

•       a reasonable person would conclude that one of its principal functions is to falsify, manipulate, hide, obfuscate, destroy or prevent the creation of such records.

Importantly, the thing or things only needs to be ‘capable’ of falsifying, manipulating, hiding, obfuscating, destroying or preventing the creation of a tax record. This means that it is not necessary to establish that a tax record has been altered except under the offence created by proposed section 8WAE which deals with altering, making or incorrectly keeping records using an ESS tool.

The primary constraining element of the offence is the fact that a reasonable person would conclude that one of its [the alleged ESS tool’s] principal functions is to falsify, manipulate, hide, obfuscate, destroy or prevent the creation of such records.[60] In this regard the Explanatory Memorandum states:

The principal function test operates in conjunction with the capability requirement to ensure that the definition does not extend to an ordinary system or specific features of an ordinary system that could be used to erase, hide or manipulate records. This aspect of the test takes into account the context of a particular tool to exclude ordinary and legitimate features of point of sales systems from the definition, even those which are capable of abuse with some effort.[61] (Emphasis added)

Tax records

The record which is capable of being manipulated must be a record that is required to be kept under a taxation law. A taxation law includes among other things:

•       an Act or part of an Act of which the Commissioner has the general administration and

•       legislative instruments made under such an Act or part of such an Act.[62]

However, for the purposes of the TAA, a taxation law does not include the Excise Act 1901, or any legislative instruments made under that Act.[63] The Explanatory Memorandum notes that this is because excise is levied on manufacture rather than sale and therefore sales suppression does not affect such liabilities.[64]

There is a wide range of record keeping obligations imposed on taxpayers under legislation that the Commissioner administers.[65] The general record keeping provisions are under section 262A of the Income Tax Assessment Act 1936 (ITAA36) and section 382-5 of Schedule 1 to the TAA which impose broad obligations on taxpayers, for example:

•       a person carrying on a business must keep records that record and explain all transactions and other acts engaged in by the person that are relevant for any purpose of ITAA36

•       a person must keep records that record and explain all transactions and other acts they engage in that are relevant to a supply, importation, acquisition, dealing, manufacture or entitlement to indirect tax transactions (for example GST).[66]

There are additional record keeping obligations, however it is sufficient to note that the definition of electronic sales suppression tool extends to a wide range of records, including those records that are required to be kept for the purposes of GST. This is logical considering that the Bill’s intent is to prevent tax fraud and evasion using ESS tools to manipulate tax records.

Electronic point of sale system

‘Electronic point of sale system’ is not defined in the tax Acts, and hence will be given its ordinary meaning.

A POS system can simply refer to a manual system for transacting and recording sales. However, under the proposed definition of electronic sales suppression tool the ‘record’ is one that is or would be created by an ‘electronic point of sale system’—accordingly, the POS system must be an electronic one.[67] What exactly will be considered to be an electronic point of sale system is not clear, however, modern point of sale systems are generally computer systems with varying degrees of functionality.[68] As stated by the OECD:

The functionality of POS systems varies in sophistication from the fairly simple to the extremely comprehensive. It is possible that not all of the functions that are available from the supplier will be activated in the system that is delivered and installed for the particular business user. Mid-range to high range systems often include either touch pads or touch screens and can be optionally networked to computers and linked to scanning systems. The sophistication and variety in such systems can present a challenge to the tax auditor who needs to understand how to effectively audit them.[69]

Point of sale systems are also available as cloud-based software. In this case a vendor may access the point of sale software directly through a web browser, using a tablet for example.[70] Like many cloud-based services, the service provider may not necessarily be located in Australia.

Criminal offences under proposed Subdivision BAA

Producing or supplying ESS tools

Proposed subsection 8WAC(1) makes it an offence to manufacture, develop or publish a sales suppression tool. In turn, proposed subsection 8WAC(2) makes it an offence to make a supply[71] of or make available for use an electronic sales suppression tool or a right to use[72] such a tool, or to provide a service to an entity that involves the use of such a tool.

In both cases, the maximum penalty[73] is 5,000 penalty units—currently $1.05 million.[74]

Possessing ESS tools

Proposed subsection 8WAD(1) makes it an offence to acquire, possess or have control of an ESS tool or a right to use an ESS tool where the person is required to keep or make a tax record.

The maximum penalty under proposed section 8WAD(1) is 500 penalty units—currently $105,000.

Incorrectly keeping records using ESS tools

Proposed subsection 8WAE(1) makes it an offence to keep, alter or make a tax record using an ESS tool or prevent a tax record being kept, altered or made using such a tool where the person is required to keep or make a tax record, and as a result of the use of the tool:

•       the record does not correctly record or explain the matter, transaction, act or operation to which it relates and

•       the person does not keep or make the record in accordance with the taxation law.

The maximum penalty that can be imposed is 1,000 penalty units—currently $210,000.

Extension of criminal responsibility

The criminal offences under proposed Subdivision BAA also apply to a person who aids, abets, counsels or procures the commission of any of the offences.[75]

Application of strict liability

The offences under proposed sections 8WAC, 8WAD and 8WAE are offences of strict liability. As noted above and stated by the Scrutiny Committee:

Under general principles of criminal law, fault is required to be [proved] before a person can be found guilty of a criminal offence (ensuring that criminal liability is imposed only on persons who are sufficiently aware of what they are doing and the consequences it may have). When a bill states that an offence is one of strict liability, this removes the requirement for the prosecution to prove the defendant's fault. In such cases, an offence will be made out if it can be proven that the defendant engaged in certain conduct, without the prosecution having to prove that the defendant intended this, or was reckless or negligent.[76]

The Scrutiny Committee noted its concern with the application of strict liability to the proposed offences where a significant financial penalty can be imposed. In particular, the Committee noted that the A Guide to Framing Commonwealth Offences states that strict liability is only appropriate where the offence is not punishable by imprisonment and is only punishable by up to 60 penalty units for an individual.[77]

Strict liability applied to offences under subsections 8WAC(1), (2) and 8WAD(1) of the Exposure Draft. However strict liability did not apply under subsection 8WAE(1) (incorrectly keeping records using an ESS tool). Further, under all offences in the Exposure Draft, punishment could include a term of imprisonment with maximum terms ranging from two to five years.[78] In contrast the Bill does not provide for terms of imprisonment under proposed sections 8WAC, 8WAD and 8WAE.

Justifying strict liability offences

The application of strict liability to the offences under proposed subsubsection 8WAC(1) and (2) (producing or supplying an ESS tool) have been justified in the Explanatory Memorandum on the following grounds:

•       it improves the effectiveness of the prohibition on electronic sales suppression tools

•       it will act as a significant deterrent to entities facilitating tax evasion and fraud through the production and supply of electronic sales suppression tools

•       there is no reason for an entity to produce or supply an electronic sales suppression tool as by its very nature it is designed to facilitate tax evasion and fraud (excepts as provided for by the specific defence)

•       prosecuting at the facilitation level will reduce the instance of evasion and fraud at the user level

•       the severity of the penalties is justified because they relate to intentional and systematic tax evasion and fraud and

•       the penalty is aligned with the civil penalty applied to the promoters of tax exploitation schemes and penalties that are imposed for breaches of directors’ duties under the Corporations Act 2001.[79]

In relation to proposed section 8WAC (producing or supplying an ESS tool), the Scrutiny Committee noted:

… the difficulty in reconciling an offence which seeks to punish intentional conduct with a proposal to remove the requirement to prove fault in relation to that conduct.[80]

The Scrutiny Committee specifically drew out this point because one of the bases on which the Explanatory Memorandum justifies the high penalty under proposed section 8WAC, is that it relates to intentional and systematic tax evasion and fraud.[81]

As noted in the Explanatory Memorandum, the penalty for a promoter of a tax exploitation scheme is commensurate with the maximum penalty that can be imposed under proposed section 8WAC for producing or supplying an ESS tool—5,000 penalty units.[82] In fact, a higher maximum penalty can be imposed for promoters of tax exploitation schemes, being the greater of 5,000 penalty units for an individual, 25,000 penalty units for a body corporate or twice the consideration received by the entity or its associates in respect of the scheme.[83] However, the Federal Court is prevented from imposing a penalty if, broadly, the entity satisfies the Court that the conduct:

•       was due to a reasonable mistake of fact or

•       was due to the act or default of another entity (excluding employees), to an accident or to some other cause beyond the entity's control and the entity took reasonable precautions and exercised due diligence to avoid the conduct.[84]

The Scrutiny Committee considered that less extensive justification was provided in relation to offences under proposed sections 8WAD and 8WAE (possession or use of an ESS tool). In the case of possession of an ESS tool, the Explanatory Memorandum states that strict liability is appropriate because ESS tools have no purpose other than to facilitate tax evasion or fraud.[85] However, CAANZ noted in its submission on the Exposure Draft that considering the sophistication of some tools, it may not be immediately apparent to a person whether they are in possession of an ESS tool or how they find out if they are.[86] This is consistent with the Scrutiny Committee’s concern that criminal liability would extend to mere inadvertence, for example where a person is unware that they possess an ESS tool notwithstanding that it is not used and is not intended to be used for the purpose of altering sales data and evading tax obligations generally.[87]

CAANZ recommended that such a risk could be mitigated by requiring the ATO to endorse software providers. To this end, CAANZ understood that Treasury, the ATO and software providers were in discussion to ensure that computer systems do not ‘inadvertently trigger’ the proposed criminal offences.[88] CAANZ’s recommendation is consistent with the ‘quality mark’ approach and the use of ‘certified’ electronic point of sale systems noted with approval by the OECD, which broadly involve the revenue authority endorsing specific software or hardware and in some cases mandating the use of those systems.[89]

This concern is also partially mitigated by the fact item 4 of Schedule 1 prevents proposed subsection 8WAD(1) (possession of an ESS tool) from applying for up to six months after the Bill commences if the person acquired the ESS tool before 7:30pm on 9 May 2017 (2017–18 Budget) and notified the Commissioner after the commencement of the Bill (the day after Royal Assent) and complied with the Commissioner’s direction to deal with the ESS tool in a particular way. However, if a person is unaware of their possession of an ESS tool, or they inadvertently acquire an ESS tool after 7:30pm on 9 May 2017, then they will not be afforded such protection.

In response to the Scrutiny Committee’s concern, the Minister emphasised the application of strict liability to the proposed offences on the basis that there can be no legitimate use of an ESS tool. Accordingly, the fact that a person possesses, uses, manufactures or supplies an ESS tool is sufficient to determine criminal liability.[90] The Minister has also reiterated:

•       the proposed penalties send the strongest possible signal, short of imprisonment, regarding the severity of the behaviour of engaging in systemic tax fraud and evasion

•       the upper limit of 5,000 penalty units for the manufacture and supply of ESS tools reflects that the activity can involve systemic and commercial scale operations designed to facilitate tax fraud and evasion. The upper penalty limit also reflects the magnitude of the risk to Commonwealth revenue from such activities

•       the proposed penalties are comparable to those that apply to promoters of tax exploitation schemes and breaches of certain directors’ duties (consistent with the principle that there should be consistent penalties for existing offences of a similar kind as articulated in the A Guide to Framing Commonwealth Offences) and

•       the general defence for honest mistake of fact (discussed below) is available to a person who unwittingly comes into possession of an ESS tool.[91]

However, as noted above the Scrutiny Committee remains concerned that where a person acquires an ESS tool, does not use it but nevertheless continues to possess it because, for example they are unaware of the intention to criminalise such possession, the person can be convicted of an offence under proposed subsection 8WAD(1).[92] It is unlikely that the defence of honest mistake of fact would apply in such a circumstance.

While the Scrutiny Committee remains concerned about the application of strict liability to offences that carry maximum penalties varying between 500 to 5,000 penalty units:

•       it has left it to the Senate to decide the appropriateness of the application of strict liability to such offences and

•       it has requested that the key information provided by the Minister be included in the Explanatory Memorandum.[93]

Defences

Honest mistake of fact

A defence of honest mistake of fact is available under section 9.2 of the Criminal Code, which provides that a person is not criminally responsible for a strict liability offence that has a physical element for which there is no fault element if:

•       at or before the time of the conduct constituting the physical element, the person considered whether or not facts existed, and is under a mistaken but reasonable belief about those facts, and

•       had those facts existed, the conduct would not have constituted an offence.

In the case of an offence under proposed subsection 8WAD(1) for the possession of an ESS tool, it appears that this defence may be able to be relied upon where, for example a person purchases an electronic point of sales system that contains an ESS tool, but the person was under the belief that it did not contain such a tool. The Minister gave the following explanation in response to the Scrutiny Committee’s concerns:

In developing the proposed offence for possession, careful consideration was given to this issue and it was determined that the general defence for honest mistake of fact provided appropriate protection to persons who unwittingly came into possession of such a tool, as well as in respect of the other actions covered by the proposed offences (the availability of this defence is noted at paragraphs 1.52, 1.66 and 1.76 of the explanatory memorandum). As such, if a person inadvertently acquired an electronic sales suppression tool but genuinely believed that it did not have that function, the person would not commit an offence.[94]

Notwithstanding that the defence is available in such a case, the defendant still bears the evidential burden in relation to the defence.

Preventing or deterring tax evasion

A defence is available under proposed subsections 8WAC(3) (producing or supplying) and 8WAD(2) (possession) where the conduct was undertaken by a person for the purpose of preventing or deterring tax evasion or enforcing a taxation law.

While this defence was available in section 8WAE(2) of the Exposure Draft for incorrectly keeping records using an ESS tool, it is not available under proposed section 8WAE. The Explanatory Memorandum justifies this on the basis that the scope of the offence in proposed section 8WAE is limited to conduct involving an entity’s own tax records:

Such use is fundamentally inconsistent with the purpose of preventing or deterring tax evasion as it inherently involves the actual commission of tax evasion.[95]

In any event, this defence is narrow in its application and as stated in the Explanatory Memorandum it is intended to apply to entities such as:

•       researchers developing ‘counter-tools or tools designed to provide better information about how the technology operates’

•       ‘whistle-blowers that alert authorities to the existence or use of electronic sales suppression tools’ and

•       ‘authorities that confiscate such tools or develop or use them for law enforcement purposes’.[96]

The defendant bears the evidential burden in relation to the defence, which means that the defendant is required to raise evidence on the matter to establish whether it exists.[97] As stated by the Scrutiny Committee:

At common law, it is ordinarily the duty of the prosecution to prove all elements of an offence. This is an important aspect of the right to be presumed innocent until proven guilty. Provisions that reverse the burden of proof and require a defendant to disprove, or to raise evidence to disprove, one or more elements of an offence, interferes with this important common law right.[98]

The Scrutiny Committee considered that the framing of the exception as an offence-specific defence has not necessarily been justified in accordance with the A Guide to Framing Commonwealth Offences.[99] The Minister has since explained that an offence-specific defence is justified on the basis that:

•       the defendant will be best placed to raise evidence about their purpose for engaging in the activities

•       it will be difficult for the prosecution to establish such a purpose, whereas it will be peculiarly within the defendant’s knowledge and comparatively simple for the defendant to establish and

•       it makes clear the expectation that persons must exercise extreme care and diligence when undertaking such actions.[100]

The Scrutiny Committee has requested that this information be included in the Explanatory Memorandum.[101]

Extension of Australia’s jurisdiction beyond it geographical borders

Proposed subsections 8WAC(5) and (6) apply extended geographical jurisdiction category D to the offences under subsections 8WAC(1) and (2) in specified circumstances. Under section 15.4 of the Criminal Code, this means that, in the circumstances explained below, the offences apply:

•       whether or not the conduct constituting the offence occurs in Australia and

•       whether or not a result of the conduct constituting the alleged offence occurs in Australia.[102]

Under proposed section 8WAC(5) extended geographical jurisdiction applies to the offence under proposed subsection 8WAC(1) for manufacturing, developing or publishing an ESS tool if the tool is used at any time to modify records that a taxation law requires an entity to keep or make.

Similarly, under proposed subsection 8WAC(6) extended geographical jurisdiction applies to the offence for the supply or making available of an ESS tool or the provision of a service involving the use of such a tool to an entity that is required by a taxation law to keep or make a record. An example of the operation of this provision is provided in the Explanatory Memorandum:

Example 1.3 - manufacture and supply of an electronic sales suppression tool outside of Australia 

Luke, a software developer in Iceland, develops an electronic sales suppression tool that alters point of sales transactions by removing them entirely from an entity’s sale records. He advertises the tool for sale online and it is purchased by Hans, who owns a bar in Perth, Australia.

Hans installs the electronic sales suppression tool on the point of sales registers at his bar and uses the tool to modify his transaction records.

Even though Luke is not in Australia, he has committed an offence by manufacturing an electronic sales suppression tool that is used to modify records that are required to be kept under Australian taxation law.

Luke has also committed the offence of supplying an electronic sales suppression tool to a person, and because he has supplied it to a person that has record-keeping obligations under Australian taxation law the offence applies to him despite his geographical location.[103]

The Explanatory Memorandum justifies the extension of Australia’s geographical jurisdiction on the basis that overseas manufacturers and suppliers should be held responsible for their role in the facilitation of Australian tax evasion or fraud.[104]

While the provisions apply to entities outside of Australia, enforcement and detection will likely be an issue. Where sales suppression is provided as a service over the cloud, it is conceivable that the supplier may operate different elements of the service in multiple jurisdictions, which may make it more difficult to discover.

Complementary and alternative measures

In the 2017–18 Budget, the Government considered that the prohibition on sales suppression technology was in line with the responses of other jurisdictions.[105] In response to the threat posed by ESS tools to government revenues, the OECD’s 2012 paper Electronic Sales Suppression: A threat to tax revenues[106] made the following recommendations:

•       tax administrators should develop a strategy to combat electronic sales suppression

•       a communication programme should be developed to raise awareness of the criminal nature of sales suppression

•       tax authorities should consider whether their powers to review and audit POS systems are sufficient

•       tax administrators should acquire new skills and tools to audit POS systems and

•       consideration should be given as to whether providing or possessing ESS tools should be criminalised.[107]

The report also highlighted the use of ‘fiscal tills’ in foreign jurisdictions to address sales suppression.[108] The OECD’s 2017 report Technology Tools to Tackle Tax Evasion and Tax Fraud states:

Where tax crime is facilitated by technology, a technology response is needed. The most common counter-suppression tool used to address electronic sales suppression is data recording technology. This tool records and secures the sales data immediately as the transaction occurs and stores it in a manner that means it is tamper proof. This means it cannot be manipulated by phantomware or zappers, or if tampering has occurred, it is traceable and detectable…

There are different types of tools that are being used to perform this function, which are referred to in different countries and by different service providers as a fiscal control unit, electronic fiscal device, fiscal memory device, sales data controller or sales recording module…

As an additional feature, these types of tools are also being used to send data automatically to the tax authority, connecting cash registers online to their data server systems. This can occur either in real time or in bulk scheduled transfers, such as at the end of the day or each month. The tax authority then has the opportunity to access the data remotely for compliance and audit purposes.[109] (Emphasis added).

The 2017 Report highlighted the results that various jurisdictions have had as a result of the introduction of the reporting technology, including:

•       Austria — expected revenue as a result of the ESS tools is €900 million in tax revenues

•       Belgium — 8% increase in restaurant sales reported

•       Quebec, Canada — CAD $1.2 billion in taxes recovered

•       Hungary — Value added tax (VAT) revenue increased by 15%

•       Rwanda — VAT increased by 20% and

•       Sweden — increased VAT and income tax revenues has been estimated to be around SEK 3 billion per annum.[110]

In the absence of compulsory compliance, incentives such as special deduction or a reduced corporate tax rate can be used to encourage businesses to utilise the technology.[111] The reporting measures also likely result in a reduced amount of auditing hours for the tax authority as the relevant information has already been provided to it.[112]

In contrast to the above, the Bill does not mandate the use of certified software or hardware nor is a scheme that introduces incentives to use approved or certified systems that report sales data to the ATO introduced by the Bill. However, changes made by the Tax and Superannuation Laws Amendment (2015 Measures No. 5) Act 2015 will soon require ‘administrators’ of payment systems to report certain electronic business transactions.[113] Generally speaking, this will require ‘administrators’ such as authorised deposit-taking institutions, specialised payment providers and third party processors to report all transactions processed for businesses, excluding exempt transactions, to the ATO.[114] According to the ATO:

The data will be electronically matched with data held by the ATO with the aim to pre-fill a non-individual business tax return and to identify businesses that are non-compliant with registration, reporting, lodgment and payment obligations under taxation law.[115]

Only electronic transactions such as those made by credit or debit card, BPAY or other online payment methods are required to be reported—payments made by cash and cheque are excluded.[116] In the case of electronic transactions, it would appear that the ATO will be in a much better position to identify when tax records are being altered or in fact prevented from being created.

The Taskforce’s Final Report makes a number of recommendations that although not directly aimed at sales suppression technology, may nevertheless assist in preventing its use. For example, the Taskforce recommended that the requirements for tax record keeping practices should be reformed so that they are clear and simple.[117] As part of this recommendation, the Taskforce noted that the ATO should have a range of scaled administrative sanctions available to it, one of which could be requiring a control unit or ‘black box’ (a device which records all transactions processed through a cash register) be attached to non-compliant taxpayer’s cash register. The Taskforce also recommended that there should be incentives for businesses to move to a non-cash model such as tax instalment relief or implementing a ‘trusted taxpayer’ system which treats non-cash businesses as low risk.[118]

More broadly, the Taskforce noted that all levels of government already possess a significant amount of data which can be better utilised before imposing new regulations and reporting requirements on taxpayers.[119] The Taskforce also recommended that the Government implement a black economy data strategy and improve the data analytic capabilities of regulatory and law enforcement agencies.[120]

Schedule 1—Administrative penalties: electronic sales suppression tools

Item 3 of Schedule 1 will add proposed sections 288-125, 288-130 and 288-135 to the end of Division 288 of Schedule 1 to the TAA, which contains a range of miscellaneous administrative penalties. The proposed administrative penalties correspond to the criminal penalties under proposed Subdivision BAA of Division 2 of Part III of the TAA.

The proposed penalties rely on the definition of electronic sales suppression tool under proposed section 8WAB of the TAA.[121]As noted earlier, if criminal prosecution is commenced against an entity under the offences in proposed Subdivision BAA, then the entity is not liable for the corresponding administrative penalty, and any amount paid is to be refunded.[122]

Producing or supplying ESS tools

Proposed section 288-125 of Schedule 1 to the TAA imposes liability for an administrative penalty on a person if they:

•       manufacture, develop or publish an ESS tool

•       supply[123] or make available for use:

–      an ESS tool, or

–      or a right to use[124] an ESS tool or

•       provide a service to an entity that involves the use of an ESS tool.

The maximum penalty is 60 penalty units—currently $12,600.[125]

Possessing ESS tools

Proposed section 288-130 makes a person liable for administrative penalty if they are required by a taxation law (other than the Excise Act 1901) to keep or make a record, and they:

•       acquire or have possession of an ESS tool or

•       a right to use an ESS tool.

The penalty is 30 penalty units—currently $6,300.[126]

Incorrectly keeping records using an ESS tool

Proposed section 288-135 makes a person liable for administrative penalty if:

•       they are required by a taxation law (other than the Excise Act 1901) to keep or make a record, and the record is kept made or altered or prevented from being made kept made or altered with the use of the ESS tool and

•       as a result of the use of the ESS tool, the record does not correctly record or explain the matter or the record is not kept or made according to the taxation law.

The penalty is 60 penalty units — currently $12,600.[127]

Extension of liability

Liability for penalty is also imposed on an entity that aids, abets or counsels another entity in the undertaking of conduct which results in an administrative penalty.[128] The Explanatory Memorandum justifies this on the basis that the administrative penalties should reflect the automatic application of the Criminal Code to the criminal offences under proposed Subdivision BAA.[129]

Exceptions

In the case of liability under proposed subsections 288-125(3) and 288-130(3), the administrative penalty does not apply if the conduct was undertaken for the purposes of preventing or deterring tax evasion or enforcing a taxation law. This exception to liability does not apply in the case of the administrative penalty under proposed section 288-135 for incorrectly keeping records using an ESS tool. This exception was not contained in the Exposure Draft. In its submission on the Exposure Draft, CAANZ was concerned that appropriate defences to the administrative penalties were not available, stating:

Given that these administrative provisions are ones of strict liability and have large penalties attached to them, Chartered Accountants recommends that defences similar to those available to a criminal offence in relation to an electronic sales suppression tool be made available to equivalent administrative offences. For example, Section 9.2 Criminal Code Act 1995 provides a mistake of fact. Such a defence should be available to a person who has relied upon software which has the appropriate ‘tick’ of approval. (Citations omitted).[130]

While the ‘mistake of fact’ defence has not been included, the proposed sections will be subject to the machinery provisions in Division 298 of Schedule 1 to the TAA.[131] Accordingly, the Commissioner has the discretion to remit all or part of the penalty[132] and the Commissioner’s decision is reviewable under Part IVC of the TAA.[133]

As noted by CAANZ and canvassed above, the ATO could engage with POS manufacturers and suppliers to develop a ‘quality mark’. In such cases, the ATO might indicate to the community that use of such systems would be considered to be ‘low risk’ to provide taxpayers with a level of assurance where they inadvertently possess an ESS tool.

Item 4 of Schedule 1 also prevents proposed subsection 288-130(1) (possession of an ESS tool) from applying for up to six months after the Bill commences if the person acquired the ESS tool before 7:30pm on 9 May 2017 (2017–18 Budget) and notified the Commissioner after the commencement of the Bill (the day after Royal Assent) and complied with any direction given by the Commissioner as to how the ESS tool should be dealt with.

Application of existing administrative penalties

There are existing administrative penalties that may be currently applied by the Commissioner, for example for making false or misleading statements to the Commissioner.[134] The penalties vary depending on whether there is a tax shortfall amount and whether the taxpayer fails to take reasonable care, is reckless or intentionally disregards the law.[135] While higher penalties can be imposed for a false or misleading statement that results in a tax shortfall, the Bill seeks to deter the use of ESS tools by creating specific administrative penalties and imposing high maximum penalties.

Schedule 2–Third party reporting: couriers and cleaners

Item 1 of Schedule 2 to the Bill adds new items 11 and 12 to the table in section 396-55 of Schedule 1 to the TAA. The amendments require an entity that has an ABN and provides a courier or cleaning service to report certain information on entities that they engage to supply courier or cleaning services.

This is a transparency measure which will allow the ATO to receive data on what contractors in the cleaning and courier industry are being paid. Accordingly, this should increase cleaning and courier contractors’ compliance with their taxation obligations or risk being audited by the ATO. However, BDO Australia notes:

The success of the TPRS in the building and construction industries will be difficult to mirror in the higher volume cleaning and courier industries. The focus on business to contractor payments may yield some results at the cost of significantly increased compliance costs to businesses.[136]

BDO also considered that this measure does not assist where payments are made in cash, which will continue to form part of the black economy.[137] To this end BDO national tax director, Lance Cunningham, commented on 7 February 2018 on the introduction of the Bill:

These measures are a good start to this process but these measures on their own are unlikely to affect the more blatant tax avoidance in the cash economy. There are many more recommendations and issues for consideration in the Black Economy Taskforce report and we look forward to seeing how the Government responds to some of the other recommendations/considerations that would have a more substantial effect on the cash economy, like the proposal to make it illegal to undertake cash transactions above a certain threshold.[138]

The extension of the taxable payments reporting system was recommended by the Taskforce as well as the Inspector-General of Taxation (IGT). The IGT considered that the system should be extended to contractors across all industries.[139] The Taskforce has also stated:

The Taxable Payment Reporting System (TPRS), which requires contractor payments to be reported in some sectors, could be seen as an underutilised reporting tool for our more fragmented, non-traditional labour market.

… a case can be made for the TPRS to apply to sharing economy operators, both on-shore and off-shore. This could be a condition of them being able to operate in Australia (we appreciate that this will require cooperation with state authorities who typically issue licences to them). Under this approach, sharing economy firms could not avoid this obligation by arguing they were merely ‘tech platforms’. If the required reporting was not forthcoming, they would be closed down.[140] (Emphasis added).

In relation to the sharing economy specifically, the Taskforce has since recommended that ‘designated sharing (‘gig’) economy websites’ should be required to report payment data to the ATO, the Department of Social Services and other relevant agencies. It is the Taskforce’s view that this information could, among other things, be used to pre-fill tax returns.[141] The Government agreed that ‘greater transparency’ of payments made through sharing economy platforms is required and it has committed to consulting with the stakeholders to determine ‘how this recommendation could be implemented.’[142]

More generally, the Taskforce also recommended that the TPRS be extended to other high risk industries including:

•       security providers

•       road freight transport

•       IT contractors

•       owner-builders and home improvements.[143]

The Government has in part agreed with the Taskforce’s recommendation and announced in the 2018–19 budget that it will extend the TPRS to:

•       security providers and investigation services

•       road freight transport and

•       computer system design and related services.[144]

This reporting obligation is intended to take effect from 1 July 2019 with the first annual report required in 2020.[145]

The Taskforce noted that the IGT’s recommendation to extend the TPRS to contractors in all industries would increase voluntary compliance, increase the ATO’s data source for audit purposes and provide a more level playing field for businesses that comply with their obligations. However, the Taskforce ultimately considered that this would increase the compliance burden and costs for some businesses, which was presently unwarranted.[146]

The Taskforce also consider that TPRS obligations should be progressively removed from industries that meet their reporting obligations and benchmarks and the similar third-party reporting regime which applies to some government entities, should be extended to all government entities.[147]

The Tax Institute supports the expansion of the TPRS to the cleaning and courier industries, but indicated that the ‘overseas experience’ was that withholding systems were more effective than reporting regimes.[148] However, it is the Taskforce’s view that low compliance reporting mechanisms should be preferenced over withholding mechanisms which generally impose greater compliance burdens on businesses and impact cash-flows.[149]  The Taskforce nevertheless considered that withholding mechanisms may be required in ‘particularly problematic sectors’.[150]

Who does it apply to?

Under proposed table items 11 and 12 in section 396-55 in Schedule 1 of the TAA, an entity that:

•       has an Australian Business Number and

•       makes a supply of a cleaning or courier service,

must report certain information to the Commissioner where the entity has provided consideration to another entity wholly or partly for the supply of a cleaning or courier service.

Under proposed table items 11 and 12, the relevant entity does not need to report this information if:

•       the entities are the members of the same consolidated group (consolidation allows wholly-owned corporate groups to be treated as a single entity for tax purposes) or Multiple entry consolidated (MEC) group[151] or

•       the PAYG withholding obligations under Division 12 of Schedule 1 to the TAA apply, for example, payment to employees for which an amount is required to be withheld.

Under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), consideration includes:

•       any payment, or any act or forbearance, in connection with a supply of anything, and

•       any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.[152]

Supply is defined in subsection 995-1(1) of the ITAA97 and is given its meaning in section 9-10 of the GST Act. Supply within the meaning of section 9-10 of the GST Act is very broad and includes any form of supply whatsoever.

The obligation to report does not appear to extend to platform providers that facilitate a transaction or service. In CAANZ’s submission on the Exposure Draft, it identified this as a potential issue, stating:

This raises the issue as to whether a sharing platform provider (e.g. Deliveroo) or a labour hire firm are within the scope of these provisions. It could be argued that the platform provider is merely providing a technical interface and that the labour hire firm is merely providing a labour matching service even if the end product is in fact a cleaning or courier service. Chartered Accountants suggests that greater clarification of this issue be provided legislatively.[153]

Defining a cleaning or courier service

The tax Acts do not define ‘cleaning service’ or ‘courier service’ and the Explanatory Memorandum states that it is intended that the terms take their ordinary meaning.[154] The ATO has released draft guidance on its interpretation of the terms. In relation to the term ‘courier services’ the ATO states:

Courier services include activities where items or goods are collected from, and/or delivered to, any place in Australia using a variety of methods including by truck, car, station wagon, van, ute, motorcycle, motorised scooter, bicycle or other non-powered means of transport, or on foot.

Courier services do not include:

· passenger transport services e.g. buses and taxis
· transporting of blood, blood products, organs or tissue
· freight transport.[155]

In relation to ‘cleaning services’ the ATO states:

Cleaning services include any of the following activities undertaken on a building, residence, structure, place, surface, transport/vehicle, industrial machinery or equipment and for events:

• Interior cleaning
• Exterior cleaning (except sand blasting or steam cleaning)
• Carpet cleaning
• Chimney cleaning
• Gutter cleaning
• Road sweeping and street cleaning
• Swimming pool cleaning
• Park and park facilities cleaning.

‘Events’ include staging of sporting, cultural, scientific, technological, agricultural or entertainment events and exhibitions.

‘Transport/vehicles’ includes trains, trams, buses, ferries, airplanes, ships, trucks, cars and other motor vehicles.[156]

Government amendment

A Government amendment to the Bill was passed by the House (with the Bill) on 30 May 2018.[157] Broadly, the amendment exempts entities from the proposed reporting requirements ‘where the total amount of payments an entity receives for courier or cleaning services are less than 10 per cent of the entity’s GST turnover.’[158] According to the Minister, the amendment was introduced after stakeholders raised concerns about the application of the proposed amendments:

Following the introduction of the bill to parliament on 7 February 2018, additional stakeholder consultation was undertaken to address concerns that businesses providing a small portion of courier or cleaning services may have a disproportionate compliance burden. Stakeholders were supportive of the introduction of a threshold test based on GST turnover to exempt certain businesses from the reporting requirements.[159]

The Commissioner may by notice, or legislative determination, exempt a particular entity or a class of entities from the reporting requirements imposed under section 396-55 of Schedule 1 to the TAA.[160]

Subitem 3(2) of Schedule 2 to the Bill exempts an entity from the proposed reporting requirements where less than 10 per cent of the entity’s GST turnover for the reporting period relates to supply of a cleaning service (including supplies made by a contractor or subcontractor on behalf of the entity).[161] Subitem 3(3) of Schedule 2 to the Bill provides a corresponding exemption in relation to supplies of a courier service. As stated in the Supplementary Explanatory Memorandum, the exemption applies separately to cleaning and courier services:

so that if an entity offers both courier and cleaning services it must work out whether it satisfies the test separately for both cleaning and courier services. If an entity receives less than 10 per cent of its GST turnover in payments for courier services, but 10 per cent or more of its GST turnover in payments for cleaning services, it will be required to report payments made to contractors or subcontractors in relation to cleaning services and not courier services.[162]

Subitem 3(7) of Schedule 2 to the Bill defines relevant GST turnover as an entity’s ‘current GST turnover’ if the entity has been making supplies for at least 12 months or otherwise the entity’s projected GST turnover as at the end of the reporting period—that is, ‘the turnover as of the last day of the period for which the entity would be required to submit a report with details of the transactions’.[163]

Current GST turnover and projected GST turnover are both defined in the GST Act.[164] Generally an entity’s current GST turnover is, at a time during a particular month, the sum of all the supplies that the entity has made, or is likely to make, during the 12 months ending at the end of that month other than supplies which are excluded.[165] Generally an entity’s projected GST turnover is, at a time during a particular month, the sum of all the supplies that the entity has made, or is likely to make, during that month and the next 11 months other than supplies which are excluded.[166]

As noted in the Supplementary Explanatory Memorandum, it will be necessary to determine when a supply is a supply of a courier or cleaning service:

Where a courier or cleaning service is part of a mixed supply with other goods or services, only the payment received for the courier or cleaning service is counted towards the 10 per cent threshold. The other goods or services that are part of the mixed supply are not counted towards the 10 per cent threshold.

Where the courier or cleaning service is part of a composite supply the dominant part of which is a courier or cleaning service, the whole of the payment is to be counted towards the 10 per cent threshold.

Whether a courier or cleaning service is part of a mixed or composite supply is a question of fact. There are a number of ATO rulings which characterise whether a supply is a mixed or composite supply. (Citations omitted).[167]

According to the Minister, ‘[t]he ATO will publish guidance material on its website to assist businesses providing cleaning or courier services to determine when they need to report.’[168]

Notwithstanding the exemption, an entity can still choose to lode a report if it wishes to do so.[169] Also, the exemption does not cover transactions if the entity is otherwise bound by a separate reporting obligation under section 396-55 of Schedule 1 to the TAA to report that transaction.[170]

Determination not a legislative instrument

Under subitem 3(4) of Schedule 2 to the Bill, the exemption, which is taken to have been determined under 396-70(4) of Schedule 1 to the TAA is not a legislative instrument (which would be the case if the exemption was made by the Commissioner in a determination under 396-70(4) of Schedule 1 to the TAA).[171]  This means that the exemption is not subject to the Legislation Act 2003 which broadly governs the making, regulating and repeal of legislative instruments. This is justified in the Supplementary Explanatory Memorandum on the basis that the exemption is being made through a primary law (the Bill) that is subject to direct scrutiny by Parliament.[172]

Repeal or amendment of the determination

Under subitem 3(5) of Schedule 2 to the Bill, the Commissioner is given the power to repeal or amend the exemption by way of legislative instrument, which according to the Supplementary Explanatory Memorandum ‘ensures that there is flexibility to modify the determination to address any concerns with its operation raised by affected entities in the future.’[173] According to the Minister:

Given that legislative instruments are disallowable by either house of parliament, any proposed change to the threshold test by the commissioner will be subject to parliamentary scrutiny.[174]

What is required to be reported?

The relevant entity must provide the commissioner with a report that sets out specified information for the financial year.[175] Under section 396-60 of Schedule 1 to the TAA, the information required by the Commissioner must relate to:

•       the identification, collection or recovery or the reduction of a possible tax-related liability of a party to the transaction, and

•       may relate to identifying the parties to the transaction.[176]

According to ATO draft guidance, the entity which makes the supply will be required to report:

•       the ABN (where known) of the other entity and its name and address

•       the gross amount paid for the financial year

•       the total GST included in the gross amount paid and

•       the total payments made to contractors in the financial year in which the payments are made on a cash basis (that is, when they are actually paid rather than when liability arises).[177]

Other provisions

Whilst the amendments made by the Bill will commence the day after the Act receives Royal Assent,[178] the transitional provisions in Schedule 1 and Schedule 2 ensure that the amendments do not apply retrospectively to certain actions or transactions.

Schedule 1

The transitional provisions in Schedule 1 of the Bill provide an entity with the opportunity to avoid committing an offence after commencement under proposed subsection 8WAD(1) of the TAA for the possession of an ESS tool or liability for an administrative penalty under proposed subsection 288-130(1) of Schedule 1 to the TAA, if the entity:

•       acquired the ESS tool before 7:30pm on 9 May 2017—that is, when the 2017–18 federal budget was delivered

•       notifies the Commissioner of its possession of the ESS tool as soon as practicable after the commencement of Schedule 1 to the Bill, and

•       complies with any direction given by the Commissioner regarding the disposal of the ESS tool.[179]

The exception applies from commencement of Schedule 1 to the Bill until the earlier of the date specified in the Commissioner’s direction or six months after commencement.

Schedule 2

The transitional provisions in Schedule 2 of the Bill provide that the proposed amendments will apply in relation to a transaction unless:

•       the transaction happens before 1 July 2018 or

•       the transaction happens during an alternative reporting period[180] that begins before 1 July 2018.[181]

This ensures the new reporting requirements will not apply to transactions that occurred before the commencement of the new obligations imposed by the Bill.

Concluding comments

The Bill is uncontroversial in the sense that it seeks to deter conduct which facilitates behaviour that is already illegal—that is, tax fraud and evasion. To this end, the Bill creates specific criminal and administrative offences for the production, distribution, possession and use of electronic sales suppression tools. While the Bill implements the recommendation of the Taskforce, the OECD’s analysis indicates that criminal and administrative provisions should be just one part of a multipronged approach to tackling the use of electronic sales suppression. In that regard, the Bill does not advance some of the other strategies suggested by the OECD, such as certified software systems.

The Bill also requires businesses in areas that have been identified as high risk to provide information to the ATO which can be used to ensure that cleaning and courier contractors are correctly declaring their income. This also implements, in part, the recommendations of the Taskforce and beyond placing additional obligations on cleaning and courier businesses, the measure is likely to be uncontroversial.

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[1].              Australian Government, Budget measures: budget paper no. 2, 2017–18, pp. 35–6.

[2].              K O’Dwyer, ‘Second reading speech: Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018’, House of Representatives, Debates, 7 February 2018, p. 492.

[3].              The Treasury, ‘2017–18 budget measures’, The Treasury website.

[4].              Black Economy Taskforce (Taskforce), Black Economy Taskforce: additional policy ideas – consultation paper, The Treasury, August 2017; Taskforce, Black Economy Taskforce: interim report–March 2017, The Treasury, March 2017.

[5].              Taskforce, Black Economy Taskforce: final report–October 2017, The Treasury, October 2017.

[6].              Australian Government, Tackling the black economy: government response to the Black Economy Taskforce final report, The Treasury, May 2018.

[7].              Taskforce, Black Economy Taskforce: interim report–March 2017, op. cit., pp. 44–5.

[8].              The Treasury, ‘2017–18 Budget Measures’, the Treasury website, 23 October 2017; K O’Dwyer, (Minister for Revenue and Financial Services), 2017–18 Budget measures consultation, media release, 23 October 2017.

[9].              Taskforce, Black Economy Taskforce: interim report–March 2017, op cit., p. 11.

[10].              Ibid., pp. 1, 11.

[11].              Ibid., p. 14; Australian Bureau of Statistics (ABS), Information paper: the non observed economy and Australia’s GDP, 2012, cat. no. 5204.0.55.008, ABS, Canberra, 2012.

[12].              KPMG, The last frontier: shining a light on the black economy, KPMG, 2017, p. 2.

[13].              Taskforce, Black Economy Taskforce: final report–October 2017, op. cit., p. 35.

[14].              Taskforce, Black Economy Taskforce: interim report–March 2017, op. cit., p. 13.

[15].              Research Branch, Budget Review 2018–19, Research paper series, 2017–18, Parliamentary Library, Canberra, 2018, pp. 38-46.

[16].              Senate Standing Committee for the Scrutiny of Bills, Scrutiny digest, 2, 2018, The Senate, 14 February 2018, pp. 55–59.

[17].              Ibid.

[18].              Senate Standing Committee for the Selection of Bills, Report, 2, 2018, The Senate, Canberra, 15 November 2018, p. 3.

[19].              House of Representatives, ‘Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018’, Votes and proceedings, 20, 30 May 2018.

[20].              A Leigh, ‘Second reading speech: Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018’, House of Representatives, Debates, (proof), 30 May 2018, p. 73; M Thistlethwaite, ‘Second reading speech: Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018’, House of Representatives, Debates, (proof), 30 May 2018, p. 75.

[21].              A Leigh, ‘Second reading speech: Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018’, op. cit., p. 74.

[22].              Tax & Super Australia, Submission to Treasury, 2017–18 Budget measures, November 2017, pp. 1 and 3; The Tax Institute, Submission to Treasury, 2017–18 Budget measures, November 2017, pp. 1–2.

[23].              BDO Australia, Submission to Black Economy Taskforce, Black Economy Taskforce, August 2017, p. 2.

[24].              Charted Accountants Australia and New Zealand (CAANZ), Submission to Treasury, 2017–18 Budget measures, November 2017, p. 1.

[25].              Explanatory Memorandum, Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018, p. 3.

[26].              Australian Government, Budget measures: budget paper no. 2, 2017–18, p. 35.

[27].              Explanatory Memorandum, Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018, pp. 3–4.

[28].              The Statement of Compatibility with Human Rights can be found at pages 22–3 and 28–30 of the Explanatory Memorandum to the Bill.

[29].              Explanatory Memorandum, Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018, p. 23.

[30].              Ibid., p. 30–1.

[31].              Parliamentary Joint Committee on Human Rights, Human rights scrutiny report, 3, 27 March 2018, p. 79.

[32].              Ibid., p. 80.

[33].              Ibid.

[34].              Ibid.

[35].              Ibid., pp. 80–1.

[36].              Parliamentary Joint Committee on Human Rights, Human rights scrutiny report, 4, 2018, Australian Parliament, Canberra, 8 May 2018, p. 162.

[37].              Parliamentary Joint Committee on Human Rights, Human rights scrutiny report, 4, 8 May 2018, Appendix 3.

[38].              Parliamentary Joint Committee on Human Rights, Human rights scrutiny report, 4, op. cit., p. 163.

[39].              Proposed subsection 8WAC(1).

[40].              Proposed subsection 8WAC(2).

[41].              Proposed section 8WAD.

[42].              Proposed subsection 8WAE(1).

[43].              Explanatory Memorandum, Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018, p. 6.

[44].              Ibid.

[45].              Ibid.

[46].              TAA, section 8T.

[47].              Ibid., section 8V. The maximum penalty for a second or subsequent conviction is 100 penalty units ($21,000) and/or two years imprisonment (subsection 8V(2)). Section 4AA of the Crimes Act 1914 provides that a penalty unit is currently equal to $210.

[48].              Ibid., section 8L(1B); Criminal Code Act 1995, section 6.2: an offence of absolute liability has no fault elements and unlike strict liability offences, the defence of honest mistake of fact is not available.

[49].              TAA, section 8M(1).

[50].              R v Meares (1997), 37 ATR 321 as per Gleeson CJ.

[51].              Organisation for Economic Co-operation and Development (OECD), Technology tools to tackle tax evasion and tax fraud, OECD Publishing, 31 March 2017, p. 6.

[52].              OECD, Electronic sales suppression: a threat to tax revenues, OECD Publishing, Paris, 2013, p. 5.

[53].              CAANZ, Submission to Black Economy Taskforce, Black Economy Taskforce, February 2017, p. 6.

[54].              OECD, Electronic sales suppression: a threat to tax revenues, op. cit., pp. 14–15.

[55].              Explanatory Memorandum, Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018, p. 5.

[56].              OECD, Electronic sales suppression: a threat to tax revenues, op. cit., p. 6.

[57].              CAANZ, Submission to Black Economy Taskforce, February 2017, op cit., p. 6.

[58].              TAA, section 3AA(2).

[59].              Attorney-General's Department, A guide to framing Commonwealth offences, infringement notices and enforcement powers, September 2011, pp. 22–5.

[60].              Schedule 1, item 2, paragraph (b) of the definition of electronic sales suppression tool at proposed section 8WAB of the TAA.

[61].              Explanatory Memorandum, Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018, p. 10.

[62].              TAA, section 2 and ITAA97, section 995-1(1).

[63].              Under subsection 2(1) of the TAA a ‘taxation law’ is given the meaning under the ITAA97, however subsection 2(2) excludes an ‘Excise Act’ as defined at subsection 4(1) of the Excise Act 1901, which includes any instruments made under the Excise Act 1901 and any instruments made under any other Act relating to excise.

[64].              Explanatory Memorandum, Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018, p. 11.

[65].              ATO, Practice Statement Law Administration: PS LA 2005/2 Penalty for failure to keep or retain records, ATO Legal Database, 25 January 2013, p. 2.

[66].              Ibid., p. 5.

[67].              See for example: OECD, Electronic sales suppression: a threat to tax revenues, op. cit., p. 9.

[68].              Business.gov.au, ‘Point-of-sale (POS) systems’, business.gov.au website.

[69].              OECD, Electronic sales suppression: a threat to tax revenues, op. cit., p. 9.

[70].              See for example: Bluebird, ‘How Cloud-Based POS Works’, Bluebird website; technopedia, ‘Cloud-Based Point of Sale (Cloud-Based POS)’, technopedia website.

[71].              Under proposed section 8WAB, supply has the meaning given by section 9-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). Under section 9-10(1) of the GST Act a supply includes any form of supply whatsoever.

[72].              Under proposed section 8WAB, the definition of right to use includes right to possess.

[73].              Crimes Act 1914, section 4D.

[74].              Under section 4AA(1A) of the Crimes Act 1914, a penalty unit is currently equal to $210 and will be subject to indexation from 1 July 2020.

[75].              Criminal Code Act 1995 (Criminal Code), section 11.2.

[76].              Senate Standing Committee for the Scrutiny of Bills, Scrutiny digest, 2, op. cit., p. 56.

[77].              Ibid., p. 57.

[78].              Exposure Draft, subsections 8WAC(1), (2), 8WAD(1), 8WAE(1).

[79].              Explanatory Memorandum, Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018, pp. 12–13.

[80].              Senate Standing Committee for the Scrutiny of Bills, Scrutiny digest, 2, op. cit., p. 58

[81].              Explanatory Memorandum, Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018, pp. 12–13.

[82].              Ibid., p. 13.

[83].              TAA, Schedule 1 section 290-50(4).

[84].              Ibid., section 290-55(1).

[85].              Explanatory Memorandum, Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018, p. 15.

[86].              CAANZ, Submission to Treasury, November 2017, op. cit., p. 2.

[87].              Senate Standing Committee for the Scrutiny of Bills, Scrutiny digest, 2, op. cit., p. 57.

[88].              CAANZ, Submission to Treasury, November 2017, op. cit., p. 2.

[89].              OECD, Electronic Sales Suppression: A threat to tax revenues, op. cit., pp. 25–6, 29, 33.

[90].              Senate Standing Committee for the Scrutiny of Bills, Scrutiny digest, 3, op. cit., p. 304.

[91].              Ibid., pp. 304–5.

[92].              Ibid., p. 305.

[93].              Ibid., p. 306.

[94].              Ibid., p. 304.

[95].              Explanatory Memorandum, Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018, p. 18.

[96].              Ibid.

[97].              Criminal Code, section 13.3(3).

[98].              Senate Standing Committee for the Scrutiny of Bills, Scrutiny digest, 2, op. cit., p. 58.

[99].              Ibid., p. 59.

[100].              Senate Standing Committee for the Scrutiny of Bills, Scrutiny digest, 3, op. cit., pp. 308–9.

[101].              Ibid., p. 309.

[102].              Criminal Code, section 15.4.

[103].              Explanatory Memorandum, Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018, p. 14.

[104].              Ibid.

[105].              Australian Government, Budget measures: budget paper no. 2, op. cit., p. 36.

[106].              OECD, Electronic sales suppression: a threat to tax revenues, op. cit.

[107].              Ibid., p. 35; Note also that Tax & Super Australia made these recommendations in its submission on the Exposure Draft, see: Tax & Super Australia, Submission to Treasury, op. cit., p. 2.

[108].              OECD, Electronic sales suppression: a threat to tax revenues, op. cit., pp. 37–43.

[109].              OECD, Technology tools to tackle tax evasion and tax fraud, op. cit., p. 11.

[110].              Ibid., p. 12.

[111].              Ibid., p. 16.

[112].              Ibid., p. 11.

[113].              Schedule 4 to the Tax and Superannuation Laws Amendment (2015 Measures No. 5) Act 2015; ATO, ‘Business transactions through payment systems’, ATO website, 17 November 2017.

[114].              ATO, ‘Business transactions through payment systems—Payments you do not need to report’, ATO website, 2 May 2018.

[115].              ATO, ‘Business transactions made through payment systems (BTTPS) specification v1.0.1 and test scenario’, ATO software developers website, 15 November 2017.

[116].              Explanatory Memorandum, Tax and Superannuation Laws Amendment (2015 Measures No. 5) Bill 2015, p. 75

[117].              Taskforce, Black Economy Taskforce: final report–October 2017, op. cit., pp. 170-72.

[118].              Ibid., p. 70.

[119].              Ibid., pp. 107-8.

[120].              Ibid., pp. 113, 119.

[121].              ITAA97, subsection 995-1(1) proposed definition of electronic sales suppression tool, inserted by item 1 of Schedule 1 to the Bill.

[122].              TAA, section 8ZE.

[123].              ITAA97, section 995-1(1), supply is defined by section 9-10 of the GST Act.

[124].              ITAA97, section 995-1(1), definition of right to use includes the right to possess.

[125].              Proposed subsection 288-125(1).

[126].              Proposed subsection 288-130(1).

[127].              Proposed subsection 288-135(1).

[128].              Proposed subsections 288-125(2), 288-130(2) and 288-135(2).

[129].              Explanatory Memorandum, Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018, p. 20.

[130].              CAANZ, Submission to Treasury, November 2017, op. cit., p. 3.

[131].              TAA, Schedule 1, section 298-5.

[132].              Ibid., section 298-20(1).

[133].              Ibid., section 298-20(3)(c).

[134].              TAA, Schedule 1, Part 4-25 (the uniform penalties regime). See for example, TAA, Schedule 1, section 284-75.

[135].              Ibid., Schedule 1, section 284-90(1); ATO, Practice Statement Law Administration: PS LA 2012/5 Administration of penalties for making false or misleading statements that result in shortfall amounts, ATO Legal Database, 11 June 2015; ATO, Practice Statement Law Administration: PS LA 2012/4 Administration of penalties for making false or misleading statements that do not result in shortfall amounts, ATO Legal Database, 11 June 2015.

[136].              BDO Australia, ‘Extension of the taxable payments reporting system’, BDO Australia website.

[137].              Ibid.

[138].              BDO Australia, ‘Black Economy Taskforce Measures – Update – 7 February 2018’, BDO Australia website.

[139].              Inspector-General of Taxation, Review into the ATO’s employer obligations compliance activities, Australian Government, Inspector-General of Taxation, Commonwealth of Australia, Canberra, December 2016, recommendation 3.4.

[140].              Taskforce, Black Economy Taskforce: additional policy ideas – consultation paper, op. cit., pp. 2–3.

[141].              Taskforce, Black Economy Taskforce: final report–October 2017, op. cit., p. 136.

[142].              Australian Government, Tackling the black economy: government response, op. cit., p. 18

[143].              Taskforce, Black Economy Taskforce: final report–October 2017, op. cit., pp. 133-4.

[144].              Australian Government, Tackling the black economy: government response, op. cit., p. 18; Australian Government, Budget measures: budget paper no. 2: 2018–19, pp. 22-3.

[145].              Budget measures: budget paper no. 2: 2018–19, op. cit., pp. 22-3.

[146].              Taskforce, Black Economy Taskforce: final report–October 2017, op. cit., pp. 131-2.

[147].              Ibid., p. 130.             

[148].              The Tax Institute, Submission to Treasury, op. cit., p. 2.

[149].              Taskforce, Black Economy Taskforce: final report–October 2017, op. cit., p. 125.

[150].              Ibid.

[151].              While the consolidation regime requires an Australian resident head company (item 1 of the table in section 703-15 of the ITAA97), under Division 701 of the ITAA97 Australian-resident entities that are wholly-owned subsidiaries of a foreign top company can form a MEC Group.

[152].              GST Act, sections 195-1; 9-15; 9-17.

[153].              CAANZ, Submission to Treasury, op. cit., p. 4.

[154].              Explanatory Memorandum, Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018, p. 27.

[155].              ATO, Draft guidance: Expansion of the taxable payments reporting system to contractors in the courier and cleaning industries, Treasury website, pp. 1–2. It should be noted that the ATO issued the draft guidance through its stakeholder forum Let’s Talk so that submissions on its interpretation of cleaning and courier services could be made by the tax community. The writer notes that the ATO issued revised draft guidance, however the revised version no longer appears to be publicly available.

[156].              Ibid., p. 3.

[157].              House of Representatives, ‘Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018’, Votes and proceedings, 20, 30 May 2018.

[158].              Supplementary Explanatory Memorandum, Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018, p. 5; Government amendments, Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018, House of Representatives, Sheet HG228,30 May 2018, Schedule 2, item 3.

[159].              K O’Dwyer, ‘Consideration in detail: Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018’, House of Representatives, Debates, (proof), 30 May 2018, p. 85.

[160].              TAA, Schedule 1, subsections 396-70(1) and (4).

[161].              Government amendments, Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018, op. cit.

[162].              Supplementary Explanatory Memorandum, Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018, pp. 5–6.

[163].              Ibid., p. 6.

[164].              GST Act, sections 188-15 and 188-20.

[165].              Ibid., subsection 188-15(1).

[166].              Ibid., subsection 188-20(1).

[167].              Ibid., pp. 6–7.

[168].              K O’Dwyer, ‘Consideration in detail: Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018, op. cit., p. 85.

[169].              Government amendments, Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018, op. cit., paragraphs 3(2)(c), 3(3)(c) and subitem 3(7).

[170].              Ibid., paragraphs 3(2)(b), 3(3)(b) and subitem 3(7).

[171].              TAA, Schedule 1, 396-70(4).

[172].              Supplementary Explanatory Memorandum, Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018, pp. 7–8.

[173].              Ibid., p. 8.

[174].              K O’Dwyer, ‘Consideration in detail: Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018, op. cit., p. 85.

[175].              TAA, Schedule 1, section 396-55.

[176].              ITAA97, section 995-1; TAA, Schedule 1, subsection 255-1(1) a tax-related liability is a pecuniary liability to the Commonwealth arising directly under a taxation law (including a liability the amount of which is not yet due and payable).

[177].              ATO, Draft guidance: Expansion of the taxable payments reporting system to contractors in the courier and cleaning industries, op. cit., p. 3.

[178].              Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018, clause 2.

[179].              Ibid., Schedule 1, item 4.

[180].              Under subitem 2(2) of Schedule 2 of the Bill alternative reporting period is the reporting period determined by the Commissioner under subparagraph 396-55(a)(ii) of Schedule 1 to the TAA.

[181].              Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018, Schedule 2, item 2, subsection (1).