At a glance
- Disputes often start from simple data mismatches.
- Responding precisely to ATO queries can avoid escalating the issue.
- Good advisers know when to bring in legal experts for complex cases.
Disputes with the ATO don’t often start with a bang. Instead, they tend to gradually build. How far they go often depends on the responses being provided to queries.
Vincent Licciardi, partner at HWL Ebsworth Lawyers, says a major dispute can come from something as simple as a data mismatch.
“The ATO now does a significant amount of data matching, and when they uncover a mismatch between what they expect to see and what they’re actually seeing on somebody’s return or activity statement, that’s when they might have questions.”
Responses to those questions – whether they’re a request for clarification, a simple follow-up query or a request for supporting documentation – can have an enormous effect on the direction of the case.
Too much information, or documentation that doesn’t answer the precise question, can put blood in the water. It can offer the ATO entirely new reasons to investigate further. Too little information can do the same.
“When clients are being investigated, obviously something is attracting the ATO’s interest,” says Jack Chee, special counsel at PCL Lawyers. “It is very important to identify exactly what the ATO is trying to find out.”
That exact query should be responded to with clarity, and with no more or less information than a precise response requires, Chee says.
“Some letters are computer-generated, triggered by things like inconsistent addresses between Medicare, Centrelink and tax filings,” he says. “Respond with precise information. And if there are ambiguous questions, seek clarification and don’t be shy to request time extensions.”
With ATO communication, stay on point
Once an investigation or dispute is in process, Licciardi says, remain strategic in your responses.
“Issues usually come up as a dispute progresses where the ATO is given too much information, including information the ATO didn’t ask for. That can happen when practitioners don’t understand the risk being targeted by the ATO, and why,” Licciardi says. “Sometimes, what the ATO may perceive to be a risk may not be a risk at all. A routine review can then inadvertently escalate to a much more substantial audit.”
Red flags from the ATO can include numerous follow-up questions after initial submissions as well as long periods of silence.
“A routine review can then inadvertently escalate to a much more substantial audit.”
Vincent Licciardi, Partner, HWL Ebsworth Lawyers
Accountants should assist clients in understanding the focus of the issue, Licciardi says, and for higher value cases should consider bringing in an experienced legal advisor to provide assistance in the background.
“When I’m involved, I review all of the materials and the ATO’s questions, and I work out how the client should respond, including whether draft responses from accountants respond correctly,” he explains. “That includes whether giving responses could create additional or other risks for the client.”
“Also, some accountants simply say they’ve never done an audit and they don’t want the stress. In this case, it’s better for their client if they have someone else on board. Either way, my recommendation would be that there should be someone objective in the process. If the accountant has looked after that client for several years, they may find it difficult to remain fully objective and dispassionate on the file.”
Keys to ATO success
There are several steps to take to ensure the greatest chance of success
Delivering documents in a timely and structured way can improve the likelihood of a fair and positive outcome, but this is only possible if everybody involved understands the investigation’s purpose.
Once queries are answered, if the response is taking a long time or if the matter progresses to a formal disagreement, it is important to know when to escalate and bring in other experts.
However, legal representation isn’t always the way forward.
“If the amount in dispute is small, the costs of legal representation could outweigh the benefits,” Chee says. “The professional fees and the time it takes to escalate might not be worth it. That’s why it’s important for everyone to understand the potential risks and outcomes in the first place.”
“Also, if the ATO has a very clear position that is supported by law and their evidence is irrefutable, we will sometimes advise the client not to proceed with an objection.
Who else can help with an ATO dispute?
Other avenues sometimes connected to ATO disputes – such as the Inspector-General of Taxation and Taxation Ombudsman (IGTO) and the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) – are of limited use during an ATO dispute.
The IGTO investigates complaints about administrative fairness and systemic issues, rather than tax assessments or legal decisions. And while the ASBFEO does offer support and advice of a general nature to SMEs, the service is not tax-specific.
The ASBFEO recommends, via its website, that those involved in a dispute with the ATO first try to resolve it directly with the ATO, then approach the IGTO, then consider applying to the Administrative Review Tribunal (ART) for a review of the ATO’s decision.
“If you do proceed with the ART, you will access a reduced application fee, dedicated case management and continued support from the ASBFEO,” the site says.
The accountant’s role in an ATO dispute
As the first port of call for the client and as the individual who is often closest to the business’s numbers, the accountant plays two vital roles during an ATO dispute. One is to calm the client. The other is to provide clear, technical guidance.
“In tax disputes, inconsistencies make your case really difficult,” Licciardi says. “The accountant must ensure accuracy and consistency across all information whilst advising clients throughout the dispute.”
Ultimately, he says, success comes less from confrontation and more from clarity and credibility in the evidence – which in accounting has always been the name of the game.
Learn more about IPA’s Global Certificate in Public Accounting here.
