The burden of proof in a tax objection

The onus or requirement of proof differs in different kinds of disputes in Australia. The most familiar is the burden or onus on a prosecution in a criminal court to establish a case beyond reasonable doubt. In civil court cases the burden or onus is on a claimant to prove a case on the balance of probabilities. In those kinds of cases the defendant may not need to prove anything.

Burden of proof in tax cases

In tax cases a reverse burden or onus applies. A tax assessment is taken to be right unless the taxpayer can prove otherwise.

Why is that? The answer is probably more practical than philosophical. In any case, it’s a bad idea not to return income and to wait for the commissioner to do the task because the commissioner’s findings will be hard to rebut if the commissioner is taken to be right to begin with.

Either in the case of a decision on an income tax objection:

the burden of proving that the assessment is excessive or is otherwise incorrect and of proving what the assessment should have been is on the taxpayer under the Taxation Administration Act (C’th) 1953. Similar state laws putting the burden of proof on to taxpayers apply to state taxes.

Save dispute costs by getting your objection right

Usually a tax objection is the only feasible way to dispute a tax assessment.

One time opportunity

That said, an objection is a valuable and relatively low cost opportunity to put a case to a commissioner that an assessment needs to be corrected.

Don’t miss it

Costs ratchet up where a taxpayer still wants to dispute the assessment once the objection is disallowed. The objection opportunity should be taken. Assistance from a tax disputes legal professional, like The Tax Objection, can be valuable. The right lawyer can draft objection documents, or review documents already prepared, suggest a strategy and let you know the prospects of success of the proposed objection.

Appeal after disallowance of a tax objection

If an income tax objection is disallowed by the commissioner then the taxpayer has sixty days from the issue of the disallowance to appeal to either of the Administrative Appeals Tribunal (“AAT”) or the Federal Court of Australia. So time is a factor as well as cost if an objection is disallowed.

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Administrative Appeals Tribunal

The AAT is a lower cost dispute resolution forum than the Federal Court. Generally the AAT will not award costs meaning that if a taxpayer loses an appeal to the AAT then the taxpayer will not have to meet the legal costs of the commissioner. Although the AAT is not a court and the AAT is not bound by the rules of evidence, the AAT is essentially a quasi-court in tax appeals and appellants will be at a disadvantage if the implications of the rules of evidence are not understood.

To commence an appeal in the AAT a fee of $861 usually applies. The AAT offers alternative dispute resolution services before a case moves to a hearing in the AAT. If a case in the AAT does not resolve and it proceeds to hearing a barrister will usually be required for the taxpayer. Legal costs will exceed $50,000 in many cases that reach the full hearing stage.

Federal Court

The Federal Court option is a more expensive alternative and, if the taxpayer loses, an order to meet the costs of the commissioner usually follows. Running a case in the Federal Court usually involves six figure legal costs.

Try to win at the objection stage

In that context making the most of the objection stage to a dispute a tax assessment before it reaches the pressing and expensive appeal stage does make sense.

How is a tax objection form done?

An objection:

Be convincing

The grounds on which the taxpayer relies, i.e. the contentions and arguments, should be robust and conclusive to convince the commissioner to allow the objection. In most cases, contentions and arguments alone will not be convincing and the objection submission should show:

  • the facts supporting the grounds; and
  • the evidence which supports the facts.

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Presentation of grounds, facts and evidence

How grounds, facts and evidence should be presented varies case by case. Where facts or evidence are open to dispute then they need to be presented in the objection in a considered and rigorous way.

We advocate systematic organisation of grounds, facts and evidence in cases where facts and evidence supporting grounds are voluminous or complex.

If facts and evidence are presented wrongly then the credibility of the taxpayer and the contentions are undermined. It is also possible that:

  • the taxpayer may make unnecessary or unhelpful admissions;
  • the commissioner will:
    • draw adverse inferences;
    • further investigate the facts; or
    • impose a penalty tax for a false or misleading statement; or
  • in the event of an appeal, the taxpayer and witnesses could be cross-examined about matters contained in the objection.

The not so helpful ATO objection forms

The Australian Taxation Office (“ATO”) has a generic and a “Professionals” version of its objection form to complete and send as paper or online. However:

a form of objection that does not mimic the ATO forms can be prepared for a taxpayer and submitted to the ATO in a number of ways including:

  • using the tax agent portal – although a “correspondence” rather than an “objection” gateway must be used so that the objection is not corralled to the ATO form and style of objection;
  • by post;
  • by delivery of the objection in person to an ATO shopfront – this way can be useful if the taxpayer needs to ensure and prove submission within the time limit.

Is there a time limit for putting in a tax objection?

Yes.

Objections need to be made within a specified time following issue of a tax assessment by a commissioner.

Will a late objection be accepted by the commissioner of taxation?

Late objections are permitted but only for a good reason which the taxpayer must establish. That is, to be certain the objection will be accepted, the objection needs to made within time.

60 days or four years from the assessment?

The good news, at least with objections against income tax assessments which are the most common, is that a taxpayer is allowed two years or four years from the issue of an original assessment to object and, in the case of an amended assessment (that is, an assessment altering an earlier assessment say following an ATO audit) the taxpayer has the later of the two or four year period from the issue of the original assessment or sixty days from the issue of the amended assessment to object.

The ATO has a useful aide memoir of objection time limits on their website. Unfortunately they frequently alter the url due to their frequent site makeovers and they do not use auto redirects so don’t rely totally on this link.

60 day time limit common for state tax assessment types

With state taxes specified times for objecting are largely unreformed which typically means that a sixty day time limit for submitting an objection applies to these types of assessments.

Extended time limits applying after an original income tax assessment

The two or four year time limit measured from the time of original income tax assessment varies with the type of taxpayer. In a nutshell a time limit of four years applies to taxpayers who run or participate as partners or beneficiaries of entities that are not small business entities.

Is an objection needed in a risk review or audit?

No.

Frequently taxpayers know about prospective assessments because a review or audit is underway and the taxpayer may have opportunity to respond to the hypothesis or position of the commissioner before an assessment issues.

Although the response may cover similar positions the response is not an objection and differs from an objection.

Characteristics of a response to an tax audit or review

That response differs from an objection in the following respects:

  • the response does not relate to an assessment because an assessment is yet to issue;
  • the response is not required to preserve the rights of the taxpayer to challenge the assessment when it does issue;
  • the response will not set out the grounds and the case of the taxpayer for the purpose of challenging an assessment once it issues (which is a committed position of the commissioner rather than a hypothesis or lesser position); and
  • the response is to the commissioner only which the commissioner will presumably take into account in whether to issue an assessment and how the assessment is issued.

Objection follows the assessment

So if a risk review or audit results in an assessment with which the taxpayer does not agree, the taxpayer will need to object.

Is an objection needed to amend a tax assessment?

A tax assessment by the Australian Taxation Office is of full effect and taken to be right even if it may be wrong. The onus is on the taxpayer to show that a tax assessment is wrong.

Assertive correction of an assessment by objection

An objection is the serious and assertive way to challenge or dispute a tax assessment. Under the income tax law, for instance, an assessment is taken to be correct and conclusive except where the taxpayer takes steps to challenge the assessment under Part IVC of the Taxation Administration Act (C’th) 1953. A tax objection is the way by which a taxpayer takes or commences that challenge.

Other methods of challenge such as seeking an amendment of an assessment, including informally, from the commissioner or seeking judicial review carry major risks and disadvantages:

Unassertive requests for an amendment

A request to a commissioner of taxation to amend an assessment, including a request for alternative dispute resolution, has almost no legal standing but it is very common. If a commissioner grants a request to amend an assessment then there is no problem. If not, can a taxpayer complain about the request or the manner in which the request was denied? The starting point is that the taxpayer had a right to make an objection but, because the taxpayer didn’t use that right, the taxpayer has no standing to demand an alteration to an assessment from the commissioner.

Unusual forms of challenge

The Australian Constitution gives citizens rights to challenge actions by Commonwealth officers. That said Australian courts have found that these constitutional rights and related laws do not extend to challenges to tax assessments, except under the most limited circumstances, as taxpayers are directed to challenge under Part IVC – they must “object”.

Judicial review and similar actions are expensive, especially when compared to the costs of preparing an objection, and the decided court cases usually show failure when they are used to challenge tax assessments with the consequence that the taxpayer is require to meet the court costs of the commissioner as well as the taxpayer’s own costs.

So it is an objection that counts

Assessments and objections are thus vital steps in Australia’s tax system that rank with the significance of tax returns.