Cooper Grace Ward has a team dedicated to helping clients respond to tax audits and disputes with the ATO and OSR.
We work closely with clients and their advisers to protect a client’s tax position, both during the audit or investigation process and where there is a dispute over the correct tax liability.
Correctly managing your initial investigation, review or audit often sets the platform for a successful and cost efficient resolution.
One important feature of tax matters is that the taxpayer has the burden of proof: you will need to know what evidence is required to meet that burden of proof.
Depending on your particular circumstances, you may want to consider:
- how you prepare and manage responses to issues raised by the ATO and OSR – both in terms of relevant evidence and submissions on the correct application of the law
- getting advice on the extent of tax audit risks and options for managing those risks
- how you manage voluntary disclosures so that you maximise the reduction in penalties
- making Freedom of Information Act 1982 (Cth) applications to ensure that all relevant information is at hand
- requesting that the Commissioner exercises their discretion in certain circumstances
- whether you need advice protected by legal professional privilege.
Where unfavourable assessments or amended assessments have been issued, you should consider:
- time limits for objecting to the assessment
- your prospects for successfully overturning the assessment
- what evidence you require to support an objection to the assessment
- how to negotiate a favourable settlement outcome with the ATO or OSR.
Where ‘default assessments’ have been issued, we often find that the objection material and supporting evidence is not sufficient for clients to meet their ‘burden of proof’. Care must be taken to provide sufficient evidence, and explain how that evidence is relevant, to meet the taxpayer’s ‘burden of proof’.
If you receive an unfavourable objection decision from the ATO or OSR, you can consider applying to the court or tribunal to review that decision.
In our experience, many matters are resolved after an appeal or review has been filed in the courts or tribunals, but before the hearing date.
If the revenue authority does not concede and the dispute proceeds to hearing, our team has a consistent record of favourable outcomes in litigation in the state and federal tribunals and courts.
If a matter can’t be resolved before hearing, it is important that you consider the most effective strategy to obtain the best possible outcome – sometimes this can be by participating in an alternative dispute resolution process, and other times it is by litigation.
When commencing proceedings, you should:
- be aware of your time limits for appealing
- consider where to commence proceedings – whether, strategically, it is better to have the matter heard at a tribunal or court – or a mixture of both
- develop an overall litigation strategy.
Private rulings are an important tool for clarifying a tax position; however, the consequences of not getting the private ruling application correct from the start can be significant.
We often see problems arise at objection because the private ruling that the objection relates to is not sufficiently detailed. Often the relevant background information and evidence is not reflected in the private ruling ‘scheme’ or the ATO has misstated the facts.
We often see circumstances where documents are not included in the private ruling ‘scheme’, which then makes it difficult to refer to those documents in the event of a dispute with the ATO.
Depending on your particular circumstances, you will need to take care in:
- preparing private ruling applications
- understanding and preparing the necessary supporting evidence
- considering your options in dealing with your unfavourable private rulings
- considering whether there are better options.
Residency issues are often complicated and contentious. Your first response to the ATO is critical. This is the opportunity to set out your circumstances and the correct application of residency law.
We often find that, where there is an entrenched dispute with the ATO, it is caused by an inadequate first response followed by a reluctance from the ATO to change their initial position.
Our experience, since acting for the successful taxpayer in Dempsey and Commissioner of Taxation  AATA 33, is that it is important for you to:
- understand your residency position under the Australian income tax law and any relevant double tax agreements
- know what evidence you will need to demonstrate to the ATO that you are a non-resident
- make sure that you don’t do anything that unnecessarily causes the ATO to audit you as these disputes can often lead to an expensive dispute.
If the ATO has already formed a position, we find that many residency disputes can still be resolved in your favour. On some occasions, this has involved starting proceedings in the AAT or Federal Court. Often these matters are settled before hearing day.
If you would like to read more about tax residency, please refer to the following links:
Directors are personally liable for particular company tax debts, including superannuation liabilities and PAYG withholding amounts. Before enforcing the debt against the directors, the ATO must send a director penalty notice (DPN).
If you have been served with a DPN it is important that you:
- act quickly
- devise a strategy to respond to the DPN
- set out any relevant defences.
We have also found that it is important for you to gather evidence demonstrating all of the steps that you took to ensure that the company complied with its obligations or appointed an administrator or liquidator.
The first response back to the ATO is critical. This response, in some cases, can prevent the ATO from starting court proceedings and suing you for your DPN debt.
If you would like to read more about direct penalty notices, please see our article, Defending director penalty notices – what are reasonable steps?
Once the ATO have issued you with an assessment they are able to take action to recover this debt. This is the case even if you are disputing an assessment.
The ATO can even sue you to recover this disputed tax debt. If this is happening to you, it is important to ensure that you manage the two aspects of a tax dispute at the same time.
In some cases you can work within the ATO’s own internal guidelines to deal with a debt before the ATO starts debt recovery proceedings.
Where the ATO has already started debt recovery proceedings, it is important that you preserve your position in the tax debt recovery proceedings while you object and appeal the underlying tax liability.
This often means:
- responding to any tax debt recovery proceedings started in the District Court or Supreme Court
- negotiating with the ATO for a deferral of collection activities
- gathering evidence in relation to your objections to the underlying tax and penalty amounts.
You might, for example, file a defence in the tax debt recovery proceedings or negotiate a payment plan for part or all of the underlying tax liability, while an objection is lodged or the appeal process is playing out in the court or tribunal.
If you would like to read more about defending tax debts, please see our article, The ATO is suing me for a tax debt – how do I respond?
In our experience disputes with the ATO can escalate quickly. This often results in an extended period of stressful interaction with the ATO, even if you ultimately successfully resolve this dispute.
It is important therefore to understand your audit risk and, where possible, take steps to minimise this risk.
It is important that you:
- understand the ATO audit selection process and what actions raise flags during this process
- are aware of the ATO’s position on technical issues and how they are currently interpreting tax law
- know the areas that the ATO is currently targeting in their auditing program
- manage any risk areas before being selected for an ATO audit.