Given the variety of complex legal considerations that are involved in a tax dispute and the ever-changing nature of the Australian tax landscape/the evolving views of the ATO towards the tax treatment of contemporary Australian business, it is crucial that a well-considered legal position and strategic pathway forward is put in place from the outset in engaging with the ATO.
Interactions with the ATO can take many forms - the ATO can be knocking on your client's front door with respect to:
- a form of casual engagement with the ATO?
- a formal ATO review or audit?
- the lodgment of an objection to an ATO assessment (default or otherwise)?
- the lodgment of a private ruling application or pre-transaction engagement?
- a voluntary disclosure that has been made (both before and during dealings with the ATO)?
- a dispute already on foot with the ATO (whether it is still being internally managed by the ATO or making its way from somewhere between the ATO through to the High Court of Australia)?
Alternatively, your client may need to knock on the ATO's front door in order to rectify a tax compliance issue.
Whatever the nature of the interaction with the ATO, a proactive approach and a comprehensive understanding of both the accounting and legal issues at play is critical to best placing your client in their interactions with the ATO.
Not having a clear handle on these considerations in the early stages of an engagement with the ATO can have serious consequences. These can range from a tax dispute being unsuccessful, to, at the very least, making the process a far more arduous and expensive process than it need be.
What sort of issues need to be examined?
Fundamentally, there is no single formula that can be applied to approach your client's interactions with the ATO. It will ultimately come down to the facts and circumstances, and the interplay of these.
However, the general type of issues that should be examined by a tax lawyer at the outset of a tax dispute are:
- what are the issues in dispute?
- what are the relevant legal issues . tax, administrative, evidence, contract, equity, trusts or otherwise...?
- how does the present matter fit within the ATO's published policy positions on litigation, settlement, debt management and the particular tax issue?
- what triggered your client's interaction with the ATO . was it a formal review program, an isolated transaction or from information sharing?
- what does the evidence show and will your client be able to meet the evidentiary burden required to prove their case?
- what impact does legal professional privilege and/or the accountant's concession have on that evidence?
- are accounting, legal or other experts required to substantiate your client's position?
- where does the matter sit within the applicable amendment periods?
- is there a possibility the ATO may take the view that fraud or evasion is present?
- is there is a tax shortfall issue? How can penalty and interest considerations be managed?
- what is the best pathway to rectify your client's tax problem? Can this matter be resolved during review, audit or the objection phase? Are there suitable alternative dispute resolution options available? If litigation is the best way forward, what is your client's appetite for litigation?
- will your client be able to pay any consequential tax liabilities?
- If not, how should this be managed? What might be the scope of personal liabilities for directors of companies?
- are the ATO likely to stop your client from leaving Australia, freeze their assets or garnishee their income whilst the dispute is unfolding? How long will it take your client to navigate the dispute? What will be the practical impact of this on their business and its cashflow?
As can be seen from the above sample list of issues, the complications can be many and varied, and span various areas of the law. The earlier all of the relevant legal factors in a tax dispute are understood and planned for, the better your client will be placed to work proactively with the ATO to achieve the most appropriate and efficient outcome possible.
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.