Taxpayers can object to assessments through the process
in Part IVC of the Taxation Administration Act 1953.
However, taxpayers often face the simultaneous challenge of
defending court proceedings where the ATO is seeking to recover the
disputed tax debt.
It difficult to defend tax debt recovery proceedings in
isolation. This is because of the rule in the tax legislation that
an assessment is conclusive evidence:
of the amounts and particulars of the tax, interest and
penalties owing, and
that the assessment was properly made.
In practice, this can mean that, even if a taxpayer has a
genuine dispute about an underlying tax liability, the ATO can
require the taxpayer to pay the amount stated in the assessment
while the dispute over the underlying debt is resolved.
What happened in Deputy Commissioner of Taxation v Anglo
American Investments Pty Ltd?
In Deputy Commissioner of Taxation v Anglo American
Investments Pty Ltd  NSWSC 975, the taxpayers argued
that ATO officers obtained information from the Cayman Islands
unlawfully and therefore the resulting assessments were invalid
– and not protected by the conclusive evidence rule –
because of conscious maladministration.
The Court acknowledged that, in tax debt recovery matters, a
taxpayer can challenge the underlying assessment on the basis that
there was conscious maladministration by the Commissioner's
officers in making the assessment. In that case, the conclusive
evidence rule would not apply because the integrity of the
assessment would be called into question. The Court referred to the
decisions of the High Court in Federal Commissioner of Taxation
v Futuris Corporation Ltd  HCA 32 and the Full Court of
the Federal Court in Denlay v Federal Commissioner of
Taxation  FCAFC 63.
However, the Court found that the defence wouldn't succeed
in this case. Even if the collection of the information from the
Cayman Islands was unlawful, it didn't mean that it amounted to
conscious maladministration in making the assessment.
The maladministration needs to be 'conscious' and not
simply mistaken – there needs to be actual bad faith by the
Commissioner's officers at the time of making the
The test is a high bar for any taxpayer to meet. These decisions
highlight the difficulty for taxpayers in asserting a conscious
So what can I do when the ATO starts proceedings to collect the
Both taxpayers and advisers need to act promptly in exercising
Part IVC objection and appeal rights.
In some cases, taxpayers can work within the ATO's own
internal guidelines to deal with a debt before the ATO starts tax
debt recovery proceedings. For example, it might be worthwhile
paying 50% of a disputed debt in exchange for the ATO agreeing
to remit the general interest charge or penalties; or
offering to provide security for the whole or part of the
In cases where the ATO has already started tax debt recovery
proceedings, it is important that you form a strategy to preserve
the position in the tax debt recovery proceedings while you object
and appeal the underlying tax liability.
For example, a taxpayer may need to 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
on the substantive tax or penalty dispute.
Our team regularly helps clients manage the two aspects of a tax
dispute at the same time. 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 and preparing evidence and submissions for objections to
the underlying tax and penalty amounts.
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The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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ATO has released 2 draft fact sheets relating to the 2010 amendments to corporate law and tax in relation to dividends.
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