Resolving your dispute with the Australian Tax Office
Butlers Business and Law
Frequently, differences in opinion arise between tax payers and
the Australian Taxation Office in relation to taxation assessments.
If a tax payer receives an income tax assessment they do not
agree with, they can object to that assessment using processes
outlined in the Taxation Administration Act 1953. Basically, the tax
dispute process is as follows:
1. After receiving a notice of assessment, the tax payer lodges an objection within the relevant time period.
2. The ATO reassesses their decision. (internal review)
3. If the ATO rejects the objection, the tax payer can apply to the Administrative Appeals Tribunal (AAT) or the Federal Court for review. (external review)
This process brings ‘fresh eyes’ to the assessment, as the objection will be considered by someone who was not involved in the original decision. An objection can also include additional facts or arguments that were not provided to the auditor.
Common examples include the provision of business stock records, payment records, and records from accounting software.
It is best to provide a high quality objection at the first instance to avoid the expensive external review process.
There are some key differences between the Federal Court and AAT jurisdictions. The AAT provides merits review, which means the tribunal can step into the Commissioner’s shoes and re-exercise their discretion. On the other hand, at first instance, the Federal Court can only address legal error through judicial review. This is also the case if a decision is appealed from the AAT to the Federal Court. If the external review process is commenced in the Federal Court and the decision is appealed, the court may be able to consider more than questions of law and allow further evidence. Generally, matters involving complicated factual issues or unsettled legal questions are more suited to the Federal Court.
The AAT is the preferred jurisdiction if the basis of the appeal concerns factual circumstances and settled law.
Unlike the AAT, the Federal Court allows parties to claim for their legal costs. This can be a significant advantage, but there is also a risk of an adverse costs order being made against the tax payer.
Tax payers can avoid reputational damage by applying to the AAT for a confidential hearing. This option is not available in the Federal Court, where all disputes are public. The rules of evidence do not strictly apply in the AAT, which can be an advantage or a source of uncertainty.
When objecting to an assessment, a tax payer will often seek to defer the recovery of a tax debt until disputed tax and penalty issues are resolved. However, if you don’t pay the debt by the due date, the debt amount will still attract interest charges for late payment. This interest continues to accrue during the dispute process, but could be remitted in some circumstances. Poor management of a tax assessment or dispute can be an extremely costly and stressful experience. It is advised that disputants engage specialist taxation specialists to manage their taxation dispute.