Tag Archives: requesting amendments

Objections and aged tax assessments

Time Limit expires

Challenging conclusive tax assessments

In an earlier blog post we looked at if an objection is needed to amend a tax assessment. We observed that, under the law, an assessment is taken to be correct and conclusive and an objection is the way by which a taxpayer can challenge that concluded correctness under the design of the law.

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 [1988] 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.

Alternative Dispute Resolution (ADR) options

A request for an amendment to the Australian Taxation Office (“ATO”) can be to resolve a disagreement about an assessment with alternative dispute resolution (“ADR”). The ATO offers ADR services including:

  • by an ATO in-house facilitator (mediator); or
  • for large and complex disputes only, appointment of an expert external mediator.

What does a mediator in ADR do?

The role of the mediator is to assist the ATO and the taxpayer to identify the real matters in dispute in the assessment and to assist the parties to find a way they can work through to an outcome on which they can agree to end the dispute over the assessment.

When does ADR work?

ADR can be useful for isolating matters in dispute, identifying prospects of success in the dispute and working towards resolution of the dispute with the ATO at lower cost. However this usefulness will depend on the type and the scope of the dispute over the assessment.

The ATO and the taxpayer will not necessarily have common ground on which resolution can be reached with the aid of mediator. The success of the mediation will turn on how far apart the ATO and the taxpayer are over the facts, their collection and how the tax law should be applied to those facts.

ADR surely preferable as an adjunct strategy

If the ADR does not track towards an acceptable outcome for the taxpayer with the aid of the mediator, to where does the taxpayer then turn? The taxpayer will have no leverage in ADR with the ATO should the ATO understand that the taxpayer’s rights to contest the assessment have expired or will expire during the course of the ADR. It is thus up to the taxpayer to ensure that an objection is either made or will be made on a timely basis so the ATO can foresee that the taxpayer has or may exercise rights to contest or even appeal the disagreement should the dispute not resolve through ADR.

Just an ADR request to the ATO is as problematic as other isolated forms of request for an amendment as a request alone does not give the taxpayer a fall back position. An ADR arrangement with the ATO makes more sense as an adjunct to a submitted or proposed objection on time.

ATO In-House Facilitation

The ATO have released an informative video explaining the in house ATO facilitation service in simple terms:

 

The Tax Objection can act is a representative in in-house facilitation by the ATO or in other ADR with commissioners of taxation.

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.