Taxpayers often negotiate with the ATO to defer
recovering a tax debt while they object to the substantive tax and
penalty issues in dispute. But as can be seen from the
taxpayers' experiences in Caratti v Commissioner of
Taxation  FCA 70 and Bazzo v Commissioner of
Taxation  FCA 71, you need to be careful to defer all of
the debts from being collected.
What happened in Caratti and Bazzo?
After an audit, Mr Caratti and Ms Bazzo received amended
assessments for tax and penalties. Mr Caratti and Ms Bazzo disputed
the assessments and lodged objections.
The taxpayers entered into separate settlement deeds with the
Commissioner. Under the deeds, the Commissioner agreed to refrain
from taking action to recover the 'Taxation Debt' while the
tax and penalty issues were resolved. The taxpayers agreed to
In each deed, the 'Taxation Debt' was a specific amount
comprising the tax and penalty liability and any general interest
charge (GIC) on those amounts that was due and
payable as at 7 August 2015, as adjusted by the 'Determination
of the Objection Process'.
The 'Determination of the Objection Process' then listed
the different processes available to Mr Caratti and Ms Bazzo to
challenge the amount of the assessments. This included the
objection decision and any applications to the Administrative
Appeals Tribunal or appeals to a court.
The question for the Federal Court was whether the Commissioner
could take action to recover GIC that had accrued on the primary
tax and penalty liabilities after 7 August 2015
– over $1 million for each taxpayer – given the terms
of the settlement deeds.
Intuitively, it was odd for the Commissioner to defer recovering
the tax, penalties and related GIC up to 7 August 2015, but try to
collect the GIC accruing from 8 August 2015.
Mr Caratti and Ms Bazzo each argued that the purpose of the
deeds was to defer the recovery of all of the amounts that could be
adjusted during the objection process. This included the amounts of
GIC from 8 August 2015 that the Commissioner wanted to recover.
The Federal Court found that on the proper construction of the
the Commissioner could not recover the 'Taxation Debt'
while Mr Caratti and Ms Bazzo exercised their rights under the
the 'Taxation Debt' was the specific amount of the tax
and penalty liabilities and GIC on those amounts as at 7 August
the GIC that accrued on the tax and penalty liabilities from 8
August 2015 was not the 'Taxation Debt' and the
Commissioner was entitled to take action to
recover those amounts.
What do you need to watch out for?
Exercising your rights to object to an assessment or amended
assessment can be difficult where the Commissioner also seeks to
recover the debt.
When you negotiate with the Commissioner to defer recovery
action, you should:
understand your own risk areas;
consider whether you have a strong case disputing the
determine whether there are there any parts of the assessment
that you agree with and, if so, whether you can make any payments
while you object to other parts of the assessments;
act promptly in responding and engaging with the Commissioner
– sometimes it is possible to resolve a dispute with the
Commissioner at an early stage before amended assessments are
make sure the terms of any settlement deed adequately address
the risk areas that are relevant to you.
It is important to understand exactly what action the
Commissioner can take under the terms of the settlement deed and
develop strategies to manage your risk and deal with any action the
Cooper Grace Ward is a leading Australian law firm based in
This publication is for information only and is not legal
advice. You should obtain advice that is specific to your
circumstances and not rely on this publication as legal advice. If
there are any issues you would like us to advise you on arising
from this publication, please contact Cooper Grace Ward
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Depending on the type of ETP, the employee's age and years of service, the amount may be taxed in various different ways.
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