ATO sets sights on medium-sized businesses

The ATO has medium-sized businesses and wealthy individuals in its sights for 2013-14. Unsurprisingly, in a revenue constrained economy with a persistent government fiscal deficit, the ATO plans to conduct more tax compliance reviews and audits this year.

The ATO has flagged plans to undertake more than 1000 income tax reviews and audits of medium-sized businesses in 2013-14, compared to 931 in 2012-13. It has also undertaken to contact another 2500 medium-sized businesses to verify information. The ATO also plans to undertake 1500 reviews and audits of highly wealthy and wealthy Australian individuals, compared to around 677 in 2012-13.  At the same time we are witnessing state authorities, such as the NSW Office of State Revenue, becoming more demanding in such areas as payroll tax and land tax.

The right help at the right time is imperative. It is important to obtain professional help and approach a review or audit in the correct way from the beginning. This ensures that the right impression is made with the revenue officer, the right relationship is built with the revenue office, accurate and relevant information is provided in a complete and timely manner, and issues, such as avoiding any unnecessary waivers of legal professional privilege on communications with lawyers, are managed properly.

The ATO has a number of standards imposed on the conduct of its reviews and audits and any subsequent actions or settlements that may follow from these actions. These include the internally imposed requirements of the new ATO ‘Code of Settlement’ and legislative obligations such as: the requirement to follow the ‘good management rule’ (that not every potential dollar of tax revenue should be pursued, regardless of cost); the requirement to take ‘genuine steps’ to resolve tax disputes through the use of alternative dispute resolution whenever possible; the ‘model litigant’ rule to strictly follow proper court procedure if the dispute proceeds to the Administrative Appeals Tribunal or Federal Court. Consequently, in addition to the normal technical complexity, which accompanies an ATO or OSR review, there are a number of administrative and procedural areas of best practice that can make a significant difference to the outcome.

Getting the right help at the right time ensures the ATO follows the stipulated requirements for the conduct of its review and best practice procedures for tasks such as requesting information or requiring taxpayer interviews. The right advice will significantly increase the effectiveness of your communication with the relevant revenue authority.

Handling disputes

A common question is if a dispute arises in connection with an ATO review or audit, does it go to the Administrative Appeals Tribunal (AAT) or Federal Court? Going to the AAT or the Federal Court is not usually the first step in resolving a dispute with the ATO or Office of State Revenue should you be issued with an amended assessment subsequent to a review or audit. It is normal (and best) practice to proceed through the objection process provided in the Tax Acts.

This requires lodgement of an objection with the ATO and the subsequent discussions, provision of information and negotiations that follow. These require experienced hands to conduct properly.

If the objection is not successful you may then choose to proceed to the AAT or Federal Court. Again, even the decision concerning the forum in which to proceed is not necessarily simple: while the AAT may appear to be cheaper and less formal, it is not possible to appeal from the AAT to the Federal Court on matters of fact, or mixed matters of fact and law, so it is best to ensure that all factual matters are accounted for and presented carefully at the AAT.

The Federal Court is more expensive, requires legal representation, and runs the hazard of costs being awarded, but is generally better for dealing with points of law and its decisions in matters of fact may later be appealed.