The Australian Taxation Office has recently reviewed how it engages with lawyers. They have released the chart below (best viewed on a large screen) setting out how lawyer-lodged objections for lawyers’ clients progress to decision.
Some comments and explanation
RDR is Review and Dispute Resolution, an ATO section (business line) established by the ATO in 2013.
We have had positive experience of the “triage” process and the aid of competent triage officers to help resolve procedural dilemmas so that the objection officer can focus on the grounds of objection.
The chart encourages lawyers’ use of Objection form – for tax professionals (NAT 13044) to achieve “direct routing”. We have said on this blog why this form is not so helpful. We don’t use this form to prepare an objection for a client and we haven’t had routing trouble we have noticed.
A recent Federal Court case Price v. Commissioner of Taxation  FCA 543 demonstrates the
divergent way a taxpayer must go about contesting a dispute with the
Commissioner of Taxation over pay as you go (PAYG) tax withholding amounts
taken from salary or wages received by the taxpayer.
Right to object about PAYG credits not available
Although the credit for PAYG withholding amounts is notified
on a notice of assessment of income tax the PAYG credit is not one of the
matters that can be disputed by objection, or more specifically, an objection under
Part IVC of the Taxation Administration
Act (C’th) 1953 (“TAA”) as discussed on this blog in: Is an objection needed to amend a tax assessment?https://wp.me/p6T4vg-k.
To formally dispute a PAYG credit, especially where the salary
and wages from which the withholding is made are not disputed, court action may
need to be taken instead. The proceeding that can be taken by a taxpayer is
further limited as the Commissioner’s refusal to allow PAYG credits cannot be
challenged under the Administrative
Decisions (Judicial Review) Act (C’th) 1977: Perdikaris v Deputy Commissioner of Taxation  FCAFC 186. So in
Price, the taxpayer (Robert) sought a
declaration from the Federal Court of his entitlement to credit for PAYG
withheld by his employers under section 39B of the Judiciary Act (C’th) 1903.
Price v. Commissioner of Taxation
In paragraphs 6 to 8 of the Federal Court decision in Price, Thawley J. outlined the legislative basis of the PAYG withholding regime including in the context of the predecessor PAYE (pay as you earn) regime which operated until 2000. In paragraph 2 Thawley J. confirmed that the taxpayer’s proceeding under section 39B of the Judiciary Act, rather than under Part IVC of the TAA, was correctly instigated.
Why the taxpayer risked heavy costs in the Federal Court
Action in the Federal Court is expensive, and an
unsuccessful litigant in the court is generally liable for the legal costs of
the successful litigant. Those legal costs are significantly more than the
costs of lodging an objection or appealing against an objection decision with
which the objector is dissatisfied in the Administrative Appeals Tribunal (AAT)
which are costs risked in Part IVC of the TAA disputes. The AAT does not award
It follows that considerable PAYG credits need to be in
dispute before action against the Commissioner in the Federal Court is worth
the risk of legal costs at stake.
In Price, Robert was
employed as a truck driver by four entities controlled by his brother Jim from
the 2001 to the 2016 income years. Robert claimed PAYG credits for the entire
period so considerable PAYG credit entitlements were at stake. Robert hadn’t
lodged tax returns returning his salary and wages income until 26 September
2016 when all sixteen income tax returns were lodged together. Robert sought
all sixteen years’ worth of tax credits then.
The employer and not the Commissioner is tested
One would think that the Commissioner could easily ascertain
PAYG credit from amounts remitted by an employer for a recipient of salary and
wages. If amounts withheld from salary and wages haven’t been remitted to the
Australian Taxation Office (ATO) then that would seemingly be conclusive or
But the point of remittance of PAYG credits to the ATO is
not the point at which the TAA operates to confer a PAYG credit entitlement to
a taxpayer. Sub-section 18-15(1) of Schedule 1 of the TAA allows PAYG credit to
a taxpayer where there has been withholding by the party with the withholding obligation, viz. the employer in the
case of an employer who pays salary and wages, of the amount withheld. Sub-section
18-15(1) necessitates an enquiry into whether or not the amounts claimed for
PAYG credit were “withheld” by the employer whether or not the amounts
“withheld” were ever remitted to the Commissioner. In the Federal Court, in its
original (non-appellate) jurisdiction, whether amounts have been withheld is a
matter of fact to be established to the court on the balance of probabilities.
In another Federal Court decision cited with approval in Price, David Cassaniti v Commissioner of Taxation  FCA 641 at
paragraphs 163 to 165 Edmonds J. thus focussed on the actions of the employer. Edmonds
J. explained and contrasted the evidential value of an employer’s apparent withholding
to a (its own) bank account which, on the one hand, “clearly demonstrates” a
withholding and an employer’s apparent withholding by book entry, which may be
insufficient to demonstrate withholding by the employer depending on the surrounding
circumstances, on the other. It was also relevant in David Cassaniti, as it was in Price,
that the employer had been a company enabling Edmonds J to accept the books of
account of the company as first instance evidence of what the books of account contained
in accordance with section 1305 of the Corporations
Employers were wound up companies
In the Cassaniti line of cases, which also included the Full
Federal Court decision in Commissioner of
Taxation v Cassaniti  FCAFC 212, relevant company records of the
employers were thus sufficient to establish to the Federal Court that amounts
had been withheld by the party with the withholding obligation. As in Price, in which the Cassanitis were also
involved, the relevant employer companies had been wound up but nevertheless,
by virtue of section 1305 of the Corporations
Act 2001, the financial records of these companies in the (earlier) Cassaniti cases were sufficient evidence
to show that the companies had made the relevant withholdings despite no record
of remittance to the ATO. Robert’s case in Price
relied on PAYG payment summaries produced from accounting records of the
employer companies being accepted as financial records of the companies.
Robert was unsuccessful. The tax returns and PAYG payment summaries were produced from MYOB in September 2016 after the employers were wound up so the court refused to accept the PAYG payment summaries as financial records of the wound up companies. Thus the PAYG payment summaries were not first instance evidence of the PAYG withholdings asserted in them. In paragraph 87 Thawley J. listed findings showing that withholdings were not made for Robert:
the absence of any records from the ATO to that
effect or supporting inferences of withholding;
the absence of any contemporaneous record of any
person or entity who paid Robert evidencing withholding;
the fact that every year or thereabouts Robert
asked for but was not provided any PAYG payment summary;
the fact that no superannuation was paid by any
of the employer companies for Robert;
the fact that Allyma Transport Services did
prepare PAYG payment summaries for other employees; and
the fact that the bank records suggest a number
of different entities paid the weekly amounts into Robert’s account (including
NT TPT Pty Ltd, PMG Transport, CJN Transport) and that at least one of those
entities (PMG Transport) probably treated the payments to Robert on the basis
that he (or a partnership of which he was a partner) was a subcontractor rather
than an employee.
The unremitted PAYG no man’s land
Cases such as the Cassaniti cases and Price are relatively rare. In
that context we can observe that it is precarious to be in the position of an
employer, or of a director of an employer, obligated to withhold PAYG amounts
from employees’ salary and wages where those amounts have not been remitted to
the ATO. The employer and, in the case of a company, its directors personally
where director penalty notices issue to the directors and trigger personal
liability under Division 269 of Schedule 1 of the TAA, are liable to the
Commissioner for these amounts. Further failure to remit PAYG withholding on
salary and wages is a strict liability offence under Division 16 of Schedule 1
of the TAA.
The pursuit of unremitted salary and wage PAYG withholdings
from the Commissioner can potentially be a fraud against the revenue where employers
and their directors have overtly arranged their affairs so that they are not exposed
to the above liabilities and prosecution for failure to remit. Confinement of
salary and wage earner remedy to proceedings under section 39B of the Judiciary Act does operate as a bulwark against
that type of fraud.
It is to be hoped that reporting of and liability for PAYG
withholding on salary and wages can be reformed and streamlined so that
employees can better monitor withholding for them in real time and opportunities
for “phoenix” PAYG credit frauds on the revenue can be reduced.
effect to a bi-partisan initiative, changes aimed at making it easier, cheaper
and quicker for small businesses to appeal to the Administrative Appeals
Tribunal (AAT) against decisions by the Australian Taxation Office (ATO) commenced
on 1 March 2019. Small business taxpayers contemplating a tax appeal to the AAT
with scant legal knowledge or representation will benefit most from the changes.
Represented small business taxpayers too can benefit from the easier, cheaper
and quicker AAT tax appeals and may improve their prospects of obtaining funding
by the ATO of legal representation costs of their appeal.
changes small business taxpayers can appeal adverse tax objection decisions to
the new Small Business Taxation Division (SBTD) of the AAT. The Small Business
Concierge Service (SBCS) within the office of the Australian Small Business and
Family Enterprise Ombudsman (ASBFEO) also commenced on 1 March 2019 to assist
small business taxpayers with appeals to the SBTD.
Tax and related review by the AAT
The AAT can review decisions on objections against tax assessments and other specified decisions made by the Australian Taxation Office (ATO) in the ATO domain on appeal under the Taxation Administration Act (C’th) 1953 viz decisions on:
Commonwealth taxes: income tax, goods and services tax, excise, fringe benefits tax, luxury car tax, resource rent taxes (petroleum and minerals) and wine equalisation tax;
Australian Business Numbers, fuel schemes, fuel tax credits, the ATO’s superannuation administration; and
penalties and interest relating to a. and b.
The SBTD can
review these decisions where the taxpayer/applicant is a small business entity under section 328-110 of the Income Tax Assessment Act (C’th) 1997. A small business entity is an entity carrying
on business with an aggregated turnover of less than $10 million in the current
Cheaper – fees for AAT review
ordinary filing fee for review of (appeal against) a reviewable decision by the
ATO in the Taxation & Commercial Division of the AAT is $920 as at 1 March
2019. A single fee can apply if there are related multiple decisions in relation
to the same appellant. A concessional fee of $91 applies for disadvantaged appellants:
The ordinary filing fee for review by the SBTD is a reduced $500. AAT regulations apply so that a SBTD taxpayer/applicant who the AAT finds is not a small business entity must pay an uplift to the ordinary $920 fee and their appeal will transfer to the Taxation & Commercial Division of the AAT.
Easier – Small Business Concierge Service
of the ASBFEO assists a small business taxpayer with the SBTD appeal process
and with advice about the appeal or prospective appeal to the SBTD the small
business taxpayer plans. Although the SBCS is within the office of the ASBFEO
and does not itself give legal advice, the SBCS:
offers a one hour consultation with an experienced small business tax lawyer to an unrepresented small business taxpayer prior to the appeal so the lawyer can review the facts pertaining to the ATO decision and provide advice on prospects of success of the appeal. In arranging a pre-appeal consultation the taxpayer needs to be aware of the 60 day time limit that generally applies for making appeals to the AAT on these decisions. A co-payment of $100 for the consultation is required from the small business taxpayer and the balance of the small business tax lawyer’s fee for the consultation is paid by ASBFEO;
assigns an ASBFEO case manager (not to be confused with the AAT case manager who will manage the appeals for the AAT) to help the small business to compile the relevant documents to maximise the benefit of the one hour pre-appeal legal consultation;
assists with the appeal to the SBTD if the small business chooses to go ahead with the appeal. The ASBFEO case manager assists with the applications and submissions to the SBTD and with engagement by the small business taxpayer with the AAT process; and
offers a second one hour consultation with an experienced small business tax lawyer to an unrepresented small business taxpayer after the appeal commences with the cost of the second consultation met by the ASBFEO without a co-payment.
Even if an unrepresented small business taxpayer utilises both hours of consultation with the assistance of the ASBFEO case manager it is still cheaper for the small business taxpayer to commence their appeal to the AAT for $600 in the SBTD, including the $100 co-payment, than to commence for $920 in the Taxation & Commercial Division.
Quicker – 28 day turnaround of reasons for decision
Decisions of the SBTD are to be “fast tracked” so that reasons for decisions will be given to the small business taxpayer usually within twenty-eight days of the hearing where the appeal goes that far. Where practicable an oral decision is to be given at the end of SBTD hearings.
Cheaper – further support for legal costs for SBTD appellants
Although the AAT, and the SBTD and the Taxation & Commercial Division in particular:
is not a court;
does not make cost orders;
isn’t bound by the legal rules of evidence; and
of itself, imposes no imperative to have legal representation;
the reality is that, where significant tax is in dispute in an appeal to the AAT, most informed appellants are legally represented and present their case in conformity with rules of evidence as if the AAT was a court. The ATO, too, selectively attends the AAT with external legal representation and, if not, ATO officers who conduct cases and appear at the AAT for the ATO are likely to have legal skills and experience. AAT decisions are reported/published and are used as legal precedent. Appellants can, though, more readily request and obtain anonymity from the AAT in tax cases than they can in courts which operate on the principle that justice is to be done in public.
The SBTD initiative partly synchronises the legal representation choice of a small business taxpayer and the ATO in a SBTD case. The ATO has transparent policy positions on when the ATO will use external legal representation in the AAT. The ATO’s position generally is that the ATO will use external legal representation where the case has high legal or factual complexity or where the case has implications for other taxpayers. Where the ATO is to engage legal representation in the SBTD then the ATO:
must inform the appellant that it proposes to engage external legal representation; and;
may meet the legal costs of the legal representation of the small business appellant that do not exceed the ATO’s legal costs of its own external legal representation. That is a possibly contentious integer as the ATO has and uses its leverage, which a small business doesn’t have, to negotiate lower fees from legal counsel with expectation of more ATO briefs.
Cheaper – greater opportunity for ATO litigation funding
This opportunity for a small business taxpayer to obtain the assistance of the ATO with their costs of legal representation in the SBTD dovetails with the test case funding policy of the ATO. Like under that policy the decision to assist a small business taxpayer with its legal costs of a SBTD appeal is with the ATO. Where the case has implications for other taxpayers then it is more likely that the ATO will both seek its own external representation and will fund the small business taxpayer’s legal costs up to the same level. Although time will tell, a small business taxpayer appears to be in an enhanced position to obtain ATO assistance with their legal representation costs in the SBTD as compared to taxpayers generally who appeal to the Taxation & Commercial Division of the AAT or who appeal directly to the Federal Court which involves significantly greater costs.
Unlike the Federal Court, the AAT does not order costs. That means that the legal fees and costs of a small business taxpayer running an appeal in the SBTD will only come from the ATO SBDT case funding or ATO test case funding, if not self funded, as legal costs won’t be awarded by the AAT even where the small business taxpayer is successful in a tax appeal case.
ASBFEO already acts as a gateway and assists small businesses to access funding for small business disputes. It is understood that the SBCS will be similarly resourced to act as a gateway to assist small businesses to obtain legal representation funding under both SBTD or ATO test case funding guidelines.
In EE&C Pty Ltd as Trustee for the Tarcisio Cremasco Family Trust v. Commissioner of Taxation (Taxation)  AATA 4093 (30 October 2018) the taxpayer, after concluding a minute of terms of agreement with the Commissioner of Taxation (the Commissioner) on 18 January 2011, entered into a deed to settle a tax dispute with the Commissioner for the 1999 to 2005 years of income on 23 March 2011 (the Deed of Settlement).
Assessments in line with settlement
On 2 June 2011 the Commissioner issued a series of assessments for those years primarily increasing, and in some income years reducing, the taxable income of the taxpayer in line with the Deed of Settlement.
Under the contractual terms of the Deed of Settlement the taxpayer was precluded from objecting against the assessments which issued as negotiated and set out in the terms.
Despite that the taxpayer had its lawyers prepare and lodge “objections” against the 2 June 2011 assessments on 4 June 2014.
Right conferred by statute overrides the terms to settle?
Apparently the lawyer had explained to the taxpayer that the taxpayer’s right to object against a taxation assessment, or more precisely a “taxation decision” under Part IVC of the Taxation Administration Act (C’th) 1953 (the TAA), is a statutory right which had lead the taxpayer to understand that their right to object persisted despite the apparent waiver of their right to object against the assessments in the Deed of Settlement.
Commissioner relied on the taxpayer’s waiver in the Deed of Settlement
The Commissioner took a contrary view and refused to treat the 4 June 2014 “objections” as valid objections.
Waiver did impact the statutory right to object
The AAT found that the Commissioner was correct in his approach. Deputy President Forgie of the AAT concluded that, as the 4 June 2014 “objections” were invalid, the AAT had no jurisdiction to review how the Commissioner dealt with them under the TAA and the Administration Appeals Tribunal Act (C’th) 1975.
Capability to waive right to object/appeal an imperative in settling tax disputes
At paragraph 89 of the AAT decision, Deputy President Forgie described a functional imperative that a taxpayer can waive their statutory right to object or appeal to settle Part IVC review and appeal proceedings:
The authorities of Cox, Grofam, Fowles and Precision Pools all support the Commissioner’s reaching a settlement with the taxpayer. The taxpayer must be permitted to forego his rights of objection and review or appeal just as the Commissioner may fulfil his obligation to decide the objection and respond to the review or appeal in terms that do so but are reached by way of agreement with the taxpayer rather than by, for example, imposition of a decision of the Tribunal or judgment of the Court. Agreement may be reached before a taxpayer engages in the formal processes of taxation objection leading to an objection decision and on to review or appeal or at some point during the process.
Why a Part IVC right to object or appeal is a type of right that can be waived
The AAT drew a distinction between a statutory right that can be waived under a contract and a statutory right that cannot. At paragraph 90, Deputy President Forgie referred to the general rule, expressed by Higgins J. in Davies v. Davies  HCA 17; (1919) 26 CLR 348, at p 362:
Anyone is at liberty to renounce a right conferred by law for his own sole benefit; but he cannot renounce a right conferred for the benefit of society.
and gave examples of other statutory rights where the recipient of the right may abandon the right or not pursue the right. It follows that as a taxpayer is the sole recipient of the legal right to object under Part IVC, the taxpayer is able to renounce that right in the course of settlement of a Part IVC dispute.
In an earlier blog post we observed that the practical way and thus the only way to challenge Federal and State tax assessments is by objecting against the assessment with an objection.
The Taxation Office raises the tax assessment & decides the objection!
Like the decision to issue a tax assessment, the objection to that assessment, if any, is decided by the (office of the) relevant Federal or State Commissioner of Taxation too. The Commissioner will usually require that the objection is decided by an objections officer other than the officer who raised the tax assessment.
Still, even if that process is followed, an objections officer will be inclined to support the position of their colleague unless the taxpayer can show, with the objection, that the assessment is wrong. The burden of showing it is wrong is on the taxpayer. So the objection needs to make out a convincing case before the tax liability in the tax assessment raised by a colleague will be reduced by the objections officer.
Objection – a one off chance
Where the taxpayer has given the Taxation Office a hastily prepared document objecting against an assessment, the objection right is used up. If the objections officer disallows the objection then the tax law doesn’t give the taxpayer any further right to object against that assessment again.
After an objection against an income tax assessment is disallowed the taxpayer faces the generally expensive option of appeal to the Administrative Appeals Tribunal or the always expensive option of appeal to the Federal Court. Either way the taxpayer is usually required to appeal within sixty days of the disallowance and will generally be limited to the grounds and arguments raised in the objection unless the taxpayer can convince the tribunal or the court that there are reasons why further grounds not set out in the objection that should be taken into account.
Had the taxpayer known this then he or she may have been more wary about rushing to lodge an objection – in the case of a disputed original income tax assessment, the taxpayer will have either two years or four years following the original notice of assessment to lodge an objection.
It is important that the taxpayer uses this time advisedly to ensure an objection (only one per disputed tax assessment) is prepared which:
demonstates that the tax assessment is wrong; and
establishes grounds of objection rigorous and comprehensive enough to be used in a tribunal or court appeal should the objection be disallowed.
Sometimes a hastily or inadequately drawn objection doesn’t raise valid grounds at all. The Australian Taxation Office has been known to invite taxpayers to withdraw their objection in these cases. Then they no longer have to decide to disallow the objection. In that situation it may be possible to object again, with better grounds, but it is open to the ATO to contend that the taxpayer has used up their right to object.
It’s clearly best objecting with rigour first time.
But, for reasons of convenience, cost and informality, taxpayers and tax agents often seek a request for an amendment of an assessment by the Commissioner of Taxation. But, as stated in our blog post, a request for an amendment is unassertive and the Commissioner has no particular obligation to consider and accede to the request.
Aged tax assessment
If a tax assessment is an aged assessment a taxpayer, who requests an amendment of the assessment, may be prevented by a time limit from obtaining the reduction in tax they seek. The Commissioner can amend an aged assessment of tax, including an amendment to decrease tax sought in a written request for the decrease by a taxpayer, within periods specified in section 170 of the Income Tax Assessment Act 1936. For individual taxpayers, with simpler income tax affairs, the period allowed is two years from the day on which the taxpayer was given notice of the assessment and, for individuals with more complex affairs, it is four years from that day – see items 1 and 4 in the table under sub-section 170(1).
If the period applicable to the taxpayer has expired then the Commissioner is prevented from making the amendment sought in a request for an amendment of the assessment by the taxpayer unless an exception in section 170 applies.
Amendment of an aged assessment following an objection
Time limits for amendments of assessments in section 170 are subject to:
an exception to give effect to a decision on an objection or an appeal – in Item 6 of the table; and
an exception where the taxpayer requests an amendment in the approved form before the time limit has been reached even if the Commissioner will not be able to amend the assessment by the time the time limit is reached: sub-section 170(5).
It follows that an objection is the only way to achieve an amendment of an aged assessment of tax if the assessment has aged so far that the applicable section 170 period for amendment has expired and the taxpayer is yet to seek an amendment of the assessment.
That only way, viz. by objection, has its own distinct time limits which match amendment of assessment time limits but with an important difference which has been in place since 1986 (see NT87/1594 and Commissioner of Taxation  AATA 73; (1988) 19 ATR 3336; 88 ATC 381 at paragraph 22). If a taxpayer seeks to object against an aged assessment, where the applicable section 170 period has expired, then the taxpayer can apply for an extension of time to lodge the objection under section 14ZX of the Taxation Administration Act 1953. In the application the taxpayer must make the case why the extension of time to extend the period in which the objection can be lodged should be allowed. We have looked at late objections in our blog – Is there a time limit for putting in an objection.
The vital difference
So the difference between an objection against an aged assessment and a request for an amendment on an aged assessment, where the statutory time limit to amend or object has expired, is that the Commissioner has the power to:
allow an application for an extension of time to lodge an objection against an aged assessment;
allow the objection lodged out of time; and
amend the relevant assessment accordingly;
but an aged assessment can’t be requested and amended out of time if the time period allowed to the Commissioner to amend the aged assessment has expired.
Following a pilot program and formative adoption of the in house facilitation process, the ATO has introduced specific guidelines including:
a precise IHF process template; and
a statement of expectations from the IHF;
for in house facilitation (IHF) of tax disputes with the ATO. The ATO offers IHF as a general means of mediation of tax disputes where the facilitator (mediator) is an ATO officer.
ATO in house facilitation video
Getting serious about dispute resolution with in house facilitation
IHF can be a valuable alternative to a taxpayer with a dispute with the ATO. So the move to entrench a correct structure of the facilitation process is to be welcomed. This should overcome the reluctance and non-adherence by some ATO officers who have come less than well prepared and committed to altenative dispute resolution in the formative IHF processes experienced by some taxpayers so far.
Honing the facts and issues in a dispute and saving costs
Indeed one significant benefit to a taxpayer of using IHF should be to normalize how an ATO case officer is dealing with their problem. A case officer may be fixated on a matter or series of matters which are divergent with a taxpayer’s understandings or divergent with the facts understood to be relevant to the taxpayer. IHF can be a real opportunity to engage with and even press the case officer and maybe his or her leadership. That engagement is with the aid of a somewhat detached ATO facilitator in an effort to reach a common or improved understanding of the relevant facts and issues. Even if that facilitation doesn’t result in a final determination of the dispute, it can, at least, lead to a narrowing of issues in dispute. A big reduction in the ultimate cost and effort of resolving the dispute can follow.
Contrast with position paper exchange
IHF is aimed at, and available only to, individual and small business taxpayers. Not all disputes are complex enough, or have tax at stake, which justify the ATO committing resources to preparing a paper setting out their position. With IHF generally available the opportunity is there for both sides to put their positions without going through a time-consuming sequence of preparing and exchanging position papers and responses. If a taxpayer and the ATO observe the entrenched IHF process and the statement of expectations, and are both well prepared at an IHF session, both parties should leave the IHF with a better understanding and honing of the matters in dispute, if not a resolution.
IHF – an open-ended offering
That is not to say that a taxpayer should not pursue IHF and exchange position papers with the ATO too. The ATO offers IHF during and following audit, after audit and after an assessment is raised, before and after an objection is lodged and before or and after an appeal to a tribunal or court is sought. In the latter cases a facilitation may have limited use to a taxpayer because of its interaction with time limits for objections and appeals and the availability of mediation facilities outside of the ATO offered once the matter reaches a tribunal or a court.
Like with a position paper, the best time to pursue IHF will usually be before an assessment is raised, if that is possible. That is the best chance of being before the ATO has a view it wishes to entrench and defend.
Timing of engagement
IHF thus offers a taxpayer some opportunity to control the timing of engagement with ATO case officers. The ATO understands that this can afford both taxpayers and the ATO with opportunities to reach common ground and to resolve tax disputes sooner. That is in everybody’s interests. Even where little progress is made in an IHF due to the nature of dispute, objection and appeal rights are preserved and the IHF process can still be of strategic value to a taxpayer on the long haul to resolving a protracted tax dispute with the ATO.
time limits for lodging objections have been based on sixty days but, for most of the significant federal taxes such as income tax, goods and services tax and fringe benefits tax, among others, extended four year and two year limits apply based on the issue of original assessments. Limits for amended assessments are based on the longer of:
sixty days from the issue of the amended assessment; and
the remaining limit on the original assessment.
Link between limits on time to object and on time to amend assessments
The extended four year and two year limits on lodging objections for these taxes are congruous with limits on the amendment of assessments which restrain both the Commissioner and the taxpayer.
Limit on time to amend an assessment doesn’t apply to an amendment following an objection
The taxpayer has a rare advantage over the Commissioner in the context of income tax because section 170 of the Income Tax Assessment Act (ITAA) 1936 provides an exception from these limits on the amendment of assessments for an amendment at any time as a result of an objection made by the taxpayer or pending a review or appeal.
Usually the Commissioner must assert fraud or evasion, or obtain the consent of the taxpayer prior to expiry of the limit, to extend the limit for the amendment of assessments under section 170.
Extension of time when outside limit on time to object
To take that rare advantage that taxpayer must be allowed to object either by right within the time to object or with an extension of time to object after that. If a taxpayer does not lodge an objection within the designated time under section 14ZW of the Taxation Administration Act 1953, then the taxpayer must seek the extension of time from the Commissioner under section 14ZX.
When will the Commissioner give an extension of time to object?
Generally speaking, the Commissioner is systematically open to granting an extension of time to object however the taxpayer must apply for a section 14ZX extension giving a plausible and acceptable explanation of the reasons and circumstances why the objection is to be lodged late.
In deciding whether to give an extension of time to object the Commissioner will preliminarily consider the merits of the case made out in the objection and whether there may be prejudice to the Commissioner, or to the taxpayer, including due to reliance on views of the professional advisors of the taxpayer, or of the Commissioner, by the taxpayer belatedly found to be incorrect.
Big dollars involved in really late objections
The recent case of Primary Health Care Limited v. Commissioner of Taxation  AATA 393 involved an appeal by an ASX-listed company against a decision of the Commissioner to refuse extensions of time to the company to lodge out of time objections against its income tax assessments. The case is notable because it involved:
total net reduction in taxable income of the taxpayer over five years of income of $155,459,566 at stake in the refused objections; and
extensions of time sought on 23 June 2015 for objections dealing with assessments for five years of income being the years ending 30 June 2003 to 30 June 2007 inclusive. That is, the extensions were sought for objections which were up to seven years late on the time limits to object.
Following an earlier successful tax appeal by the company in relation to the 2010 income year, it had become apparent that significant business activities of the company group, who operated many medical centres, were on income account and not on capital account and so the company group was entitled to significant deductions under section 8-1 of the ITAA 1997 contrary to advice and understandings in earlier tax opinions received by the company from counsel. Importantly the Commissioner had held and communicated corresponding views about the availability of the deductions to the company. In the 2010 case these views proved to be incorrect.
Long delay explainable and no prejudice
The Administrative Appeals Tribunal (AAT) identified that the company had been misled by these incorrect stances, which explained the long delay in lodging the objections, and that the Commissioner suffered no prejudice due to the delay in lodging the objections. The AAT thus found for the company and allowed the extensions of time to the company to lodge its objections.
The long delay of the company beyond the designated time limits for lodging these objections raised the possibility of prejudice to the Commissioner and the tax system should the company be allowed to contest its case in those long past years of income. The sheer length of the delay contributed to the decision of the Commissioner to refuse the extensions of time.
It was only because:
the company was able to fully explain its delay, as the company justifiably understood that it had no case on which to object based on the law as it then stood, which was a misunderstanding to which the Commissioner had contributed; and
because prejudice to the Commissioner from allowing the extensions of time to the company could not be identified;
A general interest charge (GIC), which accrues and compounds daily, applies to compensate the revenue for the time value of unpaid tax debts. That is where a taxpayer has the use and enjoyment of money which should have been paid in tax for a period of time.
Opportunity to dispute GIC
The GIC is imposed on and follows a tax debt and, for a taxpayer, it is difficult to establish a basis in the objection and appeal process upon which the GIC applicable to a tax debt should be dealt with separately and reduced and remitted.
Resolution of a tax dispute by agreement with the Australian Taxation Office is one opportunity where the GIC can be revisited and reduced so long as the Australian Taxation Office is agreeable. By the time this point is reached significant GIC can have accrued if the taxpayer has not opted to provisionally pay a tax debt that is contention.
Dealing with GIC in an agreement with the ATO
So it was, in the Federal Court in Caratti v Commissioner of Taxation  FCA 70, where $1,145,639.03 had accrued since 7 August 2015 on a tax debt of $10,948,507.45 which included GIC up to 10 February 2017.
On 23 September 2015 the taxpayer had entered into a deed of agreement with the Commissioner of Taxation under which the Commissioner refrained to recover the “Taxation Debt” defined in the deed as:
the amount of $10,948,507.45, which is comprised of 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
However the deed also stated that:
The Taxation Debt will continue to accrue GIC daily from the due date for payment in accordance with and at the rate as may be applied from time to time under the TAA 1953.
So the taxpayer could assert that the “Taxation Debt” was a variable and, further, that that interpretation is sensible as the GIC that accrued after 7 August 2015 related to the same underlying debt or “Tax-Related Liability” which the deed made irrecoverable. Although the deed stated that the “Taxation Debt” will continue to accrue GIC the taxpayer asserted that, as the GIC was a part of the “Taxation Debt”, the deed also made that accrual irrecoverable. The Commissioner contended that the Taxation Debt was $10,948,507.45, as the Taxation Debt was expressly stated to be, and that this figure was the irrecoverable total or ceiling and not just a snapshot in time of the figure.
There were other provisions and context in the deed which supported the position of the Commissioner hence Robertson J. found for the Commissioner in the Federal Court.
Equivocal term in the deed gave the ATO a GIC recovery problem
Moving liabilities like the GIC cause difficulties. $1,145,639.03 was put at stake due to the inadvertent and equivocal use of Taxation Debt (capitalised as a defined term) in the formulation of the term in the deed dealing with the further accrual of GIC. A Federal Court challenge to the ATO might have been avoided by the Commissioner if it had been clear in the deed that the amount of the Taxation Debt (as at 7 August 2015) would continue to accrue GIC as a taxation debt which, in turn, was not part of the Taxation Debt made unrecoverable by the deed.
A new and useful service from the Australian Taxation Office (“ATO”) is Complex Issue Resolution (“CIR”). An escalation is offered for complex or multiple related tax technical issues and abnormal administrative issues which officers contacted through regular channels into the ATO, or who are acting in a regular ATO compliance role, would not usually be able to address.
The limitations of Complex Issue Resolution
CIR is accessible only by tax professionals including tax agents and legal practitioners.
Guidance from CIR is not binding on the Commissioner of Taxation. It is not a substitute for objecting against an assessment, seeking a private binding ruling or making a complaint about how the ATO is dealing with the taxpayer.
The inherent benefit of restricting CIR to tax professionals is twofold:
the restriction is a filter to ensure that issues put by taxpayers to CIR are actually complex better targeting the CIR resource; and
it is more likely that a tax professional can pinpoint and explain a complex issue/s. Careful and thorough explanation can be vital to the ATO correctly appreciating the complex issue and to how the ATO may ultimately deal with it. The Tax Objection is a tax professional and we understand how complex issues should be presented to the ATO.
Thus a taxpayer, through his or her tax professional, can drive recognition of complex tax technical issues and abnormal administrative issues including where an officer of the ATO may not grasp the issue and may not be willing to escalate the issue within the ATO to a more senior or experienced officer who is better equipped to deal with the issue. Equally CIR may be limited to where other escalation has not occurred within the ATO such as allocation of the issue to Interpretative Assistance (IA) or comparable ATO officers who decide objections and private ruling applications.
CIR in a tax dispute/objection strategy
In our post “I’m objecting – do I need freedom of information (FOI)?” we looked at the kinds of tax disputes where seeking freedom of information before, or concurrently while, objecting to a tax assessment is advantageous. It is all about understanding what the ATO position is, or is likely to be, before committing time, effort and resources to a tax objection and dispute.
Applying for CIR may have a number of advantages over applying for FOI in the process of readying to object against a tax assessment:
it looks like obtaining CIR guidance will generally be quicker than obtaining FOI although this is not yet certain as CIR is so new. Where time is running out against the time limit to object to an assessment it may be invaluable to receive guidance from CIR before finalising a notice of objection; and
applying for CIR may resolve the matter entirely. The escalation of a complex issue to a senior and experienced officer may lead to CIR guidance which puts a view either:
which the taxpayer is inclined to accept for one reason or another; or
which shows that the ATO has sufficiently adopted the view contended for by the tax professional in the application for CIR.
Either way the problem can be resolved before an objection or application for private ruling is completed saving costs and effort.
Although non-binding, CIR guidance is likely to firm either as the position, or as one of the positions, of the Commissioner on the complex issues on which the dispute turns. This gives a taxpayer objecting to an assessment who has CIR guidance the opportunity to make nimble inclusions in the notice of objection and to revise or abandon arguments to raise prospects of success in the dispute.