ATO Management of Tax Disputes
Has the ATO got it right, or does it need to start playing fair?
Dealing with the Tax Office
Most dealings with revenue authorities are undertaken in a professional way. The ATO rightly sees itself as a world leader in tax administration and is continually looking to improve the way it engages with taxpayers and advisers. The Tax Commissioner and other senior officials have had impressive careers in private enterprise, and are looking to bring about cultural change in the way ATO officers go about their business. Given that tax collectors have been derided since the beginning of history, and taxpayers have always been motivated to pay the least amount of tax and not a cent more, there is a lot of sensitive scar tissue on both sides of the fence and any change in entrenched attitudes will likely be gradual.
Taxpayers complain that they are presumed to be tax cheats simply because they have been successful in business, and they complain even louder when they feel ambushed by extraordinarily complex tax rules, strict liability regimes such as the Director Penalty Notice legislation, or what can seem to be arbitrary penalties.
Inspector General of Taxation Report 27 February 2015
The Inspector General of Taxation report into the Management of Tax Disputes was released on 27 February 2015. In short the report notes that given 85% of disputes are resolved once external review processes are engaged, there is evidence that the ATO internal review processes don’t work – probably because of a “lack of separation” between auditors and review officers. The IGOT recommendations involve clearly separating the ATO review functions to improve independence and perceptions of fairness.
The report also notes that taxpayers have no right to fair treatment in the Australian Tax System, and that for many taxpayers the power imbalance is so great that they may feel they are fighting a losing battle from the very beginning. Taxpayers also fear that even if they know their rights in dealing with the ATO, defending those rights may cause bad things to happen to them in the future.
The report also reminds us that some of the basic tests for good tax administration are fairness, accountability, transparency, consistency and minimising compliance costs.
Do You Care about Tax Office Culture?
High level issues like the separation of functions in the ATO are the bread and butter of tax administrators, academics, behavioural economists and a whole range of other tax nerds. Most taxpayers who need help managing their tax affairs or in their dealings with revenue authorities don’t care about “compliance pyramids”, “synergistic benefits” or theories of taxpayer behaviour. Taxpayers want to understand the choices they have in managing their tax affairs, and they want any dealings they may need to have with the ATO and other authorities to be fair and reasonable and to have any disputes resolved cost effectively and with the minimum damage and disruption.
While ATO enquiries are a regular and non-controversial part of life (e.g. asking about Input Tax Credit claims) many taxpayers have close to zero experience in direct dealings with ATO officers. When major tax problems emerge, this lack of experience can make it very difficult for taxpayers to make informed choices, and may put them at a significant disadvantage when dealing with experienced and skilled ATO officers who may deal with one particular tax issue for a living. In my experience, clients are often bamboozled when they try to apply the commercial skills they have developed over a lifetime in business to dealings with tax officials who have different drivers, including "the integrity of the tax system".
From a taxpayer perspective, the question of whether things have changed in the way the ATO settles disputes boils down to their own personal experience. This is important, because while there are always individual horror stories that may be dismissed as complaints by disgruntled villains, it is the experiences that taxpayers have in their Tax Office dealings, and the community sense of how taxpayers are treated, that determines how people will manage their tax affairs in future.
The Tax Office Needs to Play Fair
Nassim Khadem in her article the Melbourne Age of 22 January 2015 headed “Tax Office needs to play fair” puts it succinctly:
“if the tax office expects taxpayers to be fair … and honest, the (ATO) should be fair and honest in how it reviews their objections. This is not what has happened to date.”
She was commenting on submissions to the House of Representatives Committee Inquiry into Tax Disputes from people “who have almost lost their livelihoods by being in dispute with the Tax Office”. If that article is anything to go by, there is still a way to go for the Tax Commissioner to convince the wider community that the ATO is as impartial as it would like to be seen.
Conclusion
ATO staff are probably the most professional they have ever been, but still face the same pressures of dealing with complex legislation with limited resources as taxpayers and advisers. The ATO has very talented people at the helm, however taxpayers aren’t all tax experts, they are business people and employees and mums and dads who by and large want to manage their tax affairs with the minimum of wear and tear.
Any big organisation is going to be difficult to deal with occasionally (try ringing your mobile phone provider) but that shouldn’t mean that taxpayers must simply turn the other cheek if they feel that they are being unfairly treated, or they are being put to significant expense to prove what may be patently obvious.
In any dispute it will help your cause if you come to the table with clean hands and a track record of responding to information requests, doing what you promised to do and a minimum of antagonism. There is no guarantee that even if you do these things you will get the right outcome, but at least it may encourage the Commissioner to play fair.
Damian O'Connor
Solicitor & Principal
Chartered Tax Adviser
Tax + Law
E: [email protected]
M: 0407195317
Liability limited by a scheme approved under Professional Standards Legislation
Disclaimer: This material is a general commentary on complex legal and commercial issues. It cannot be relied on as professional advice or otherwise.
© Copyright D O’Connor 2015
Has the ATO got it right, or does it need to start playing fair?
Dealing with the Tax Office
Most dealings with revenue authorities are undertaken in a professional way. The ATO rightly sees itself as a world leader in tax administration and is continually looking to improve the way it engages with taxpayers and advisers. The Tax Commissioner and other senior officials have had impressive careers in private enterprise, and are looking to bring about cultural change in the way ATO officers go about their business. Given that tax collectors have been derided since the beginning of history, and taxpayers have always been motivated to pay the least amount of tax and not a cent more, there is a lot of sensitive scar tissue on both sides of the fence and any change in entrenched attitudes will likely be gradual.
Taxpayers complain that they are presumed to be tax cheats simply because they have been successful in business, and they complain even louder when they feel ambushed by extraordinarily complex tax rules, strict liability regimes such as the Director Penalty Notice legislation, or what can seem to be arbitrary penalties.
Inspector General of Taxation Report 27 February 2015
The Inspector General of Taxation report into the Management of Tax Disputes was released on 27 February 2015. In short the report notes that given 85% of disputes are resolved once external review processes are engaged, there is evidence that the ATO internal review processes don’t work – probably because of a “lack of separation” between auditors and review officers. The IGOT recommendations involve clearly separating the ATO review functions to improve independence and perceptions of fairness.
The report also notes that taxpayers have no right to fair treatment in the Australian Tax System, and that for many taxpayers the power imbalance is so great that they may feel they are fighting a losing battle from the very beginning. Taxpayers also fear that even if they know their rights in dealing with the ATO, defending those rights may cause bad things to happen to them in the future.
The report also reminds us that some of the basic tests for good tax administration are fairness, accountability, transparency, consistency and minimising compliance costs.
Do You Care about Tax Office Culture?
High level issues like the separation of functions in the ATO are the bread and butter of tax administrators, academics, behavioural economists and a whole range of other tax nerds. Most taxpayers who need help managing their tax affairs or in their dealings with revenue authorities don’t care about “compliance pyramids”, “synergistic benefits” or theories of taxpayer behaviour. Taxpayers want to understand the choices they have in managing their tax affairs, and they want any dealings they may need to have with the ATO and other authorities to be fair and reasonable and to have any disputes resolved cost effectively and with the minimum damage and disruption.
While ATO enquiries are a regular and non-controversial part of life (e.g. asking about Input Tax Credit claims) many taxpayers have close to zero experience in direct dealings with ATO officers. When major tax problems emerge, this lack of experience can make it very difficult for taxpayers to make informed choices, and may put them at a significant disadvantage when dealing with experienced and skilled ATO officers who may deal with one particular tax issue for a living. In my experience, clients are often bamboozled when they try to apply the commercial skills they have developed over a lifetime in business to dealings with tax officials who have different drivers, including "the integrity of the tax system".
From a taxpayer perspective, the question of whether things have changed in the way the ATO settles disputes boils down to their own personal experience. This is important, because while there are always individual horror stories that may be dismissed as complaints by disgruntled villains, it is the experiences that taxpayers have in their Tax Office dealings, and the community sense of how taxpayers are treated, that determines how people will manage their tax affairs in future.
The Tax Office Needs to Play Fair
Nassim Khadem in her article the Melbourne Age of 22 January 2015 headed “Tax Office needs to play fair” puts it succinctly:
“if the tax office expects taxpayers to be fair … and honest, the (ATO) should be fair and honest in how it reviews their objections. This is not what has happened to date.”
She was commenting on submissions to the House of Representatives Committee Inquiry into Tax Disputes from people “who have almost lost their livelihoods by being in dispute with the Tax Office”. If that article is anything to go by, there is still a way to go for the Tax Commissioner to convince the wider community that the ATO is as impartial as it would like to be seen.
Conclusion
ATO staff are probably the most professional they have ever been, but still face the same pressures of dealing with complex legislation with limited resources as taxpayers and advisers. The ATO has very talented people at the helm, however taxpayers aren’t all tax experts, they are business people and employees and mums and dads who by and large want to manage their tax affairs with the minimum of wear and tear.
Any big organisation is going to be difficult to deal with occasionally (try ringing your mobile phone provider) but that shouldn’t mean that taxpayers must simply turn the other cheek if they feel that they are being unfairly treated, or they are being put to significant expense to prove what may be patently obvious.
In any dispute it will help your cause if you come to the table with clean hands and a track record of responding to information requests, doing what you promised to do and a minimum of antagonism. There is no guarantee that even if you do these things you will get the right outcome, but at least it may encourage the Commissioner to play fair.
Damian O'Connor
Solicitor & Principal
Chartered Tax Adviser
Tax + Law
E: [email protected]
M: 0407195317
Liability limited by a scheme approved under Professional Standards Legislation
Disclaimer: This material is a general commentary on complex legal and commercial issues. It cannot be relied on as professional advice or otherwise.
© Copyright D O’Connor 2015
