• Taxpayers and their advisors who are currently in dispute, or negotiating a settlement with, the ATO.


  • Taxpayers and their advisors should be careful in drafting settlement deeds to ensure that the parties' intention in settlement discussions is properly reflected in the deed.
  • Taxpayers should also ensure that they are aware of the circumstances in which the Commissioner may exercise his right to security under the terms of the settlement deed.

The recent decision of the Full Federal Court in Bazzo v Commissioner of Taxation [2017] FCAFC 139 (Bazzo) demonstrates that caution must be exercised by taxpayers and their advisors when negotiating a settlement deed with the Australian Taxation Office (ATO).


The Bazzo case concerned an appeal of two Federal Court decisions – Bazzo v Commissioner of Taxation [2017] FCA 71 and Caratti v Commissioner of Taxation [2017] FCA 70 and related to the proper construction of a Deed of Agreement (Deed) under which the Commissioner had agreed to defer proceedings to recover a taxation debt in exchange for securities given to the Commissioner.

'Taxation debt' was defined in the Deed as the 'Tax Related Liability and applicable GIC due and payable by the Taxpayer as at 7 August 2015, subject to any adjustment to those amounts by virtue of the Determination of the Objection Process'. The issue to be determined by the Court arose as a consequence of the Commissioner taking steps to recover the general interest charge (GIC) which had accrued on the taxation debt since 7 August 2015.

In each case, the Commissioner contended that the Deed did not prevent him from taking action to recover the GIC which accrued after 7 August 2015. The taxpayers' argument was that the Deeds should be read as preventing the Commissioner from recovering the taxation debt (as defined), and that this should be read as including any GIC which accrued on the principal debt after 7 August 2015.

The Court noted that the only adjustment contemplated by the Deed to the 'taxation debt' was in the event any objections lodged by the Taxpayers were accepted (either in whole or in part). The definition did not restrict the 'taxation debt' from being adjusted upward to take into account liabilities which continued to accrue after 7 August 2015.

In a unanimous decision, the Full Federal Court held that:

  • the Taxpayers remained under an obligation to pay accruing GIC which continued to accrue on the Taxation Debt, and
  • the Commissioner was entitled to take steps to recover the GIC accruing on or after 7 August 2015 and the 'taxation debt' by seeking recourse to the security provided, upon the taxpayers failing to pay the GIC (resulting in their default under the Deed).

What you need to do

Taxpayers involved in a dispute with the ATO and looking to negotiate a settlement arrangement should ensure that they fully understand the terms of, and obligations imposed by, their settlement deed. In particular, taxpayers and their advisors should ensure that the terms of their settlement deed fully reflect the agreement reached by the parties in settlement negotiations.

Tax law is complex and professional advice should be sought when engaging with the ATO in relation to managing a dispute and negotiating a settlement. Our team is able to assist with all aspects of a dispute with the ATO from risk reviews, audits and objections to applications in the Administrative Appeals Tribunal or Federal Court, including acting on a taxpayer's behalf in settlement negotiations with the ATO.