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Review into the Australian Taxation Office’s use of early and alternative dispute resolution

A report to the Assistant Treasurer

May 2010

Table of Contents


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Australian Government - Inspector-General of Taxation crest

Level 19, 50 Bridge Street
Sydney NSW 2000
GPO Box 551
Sydney NSW 2001

25 May 2012

The Hon. David Bradbury MP
Assistant Treasurer and Minister Assisting for Deregulation
Parliament House
Canberra ACT 2600

Dear Minister

Review into the ATO’s use of Early and Alternative Dispute Resolution

I am pleased to present you with my report of the review into the Australian Taxation Office’s (ATO’s) use of early and alternative dispute resolution (ADR). This review arose following stakeholder concerns that the ATO was not making sufficient use of dispute resolution opportunities. The Commissioner also requested that I undertake this review.

Given the complexities inherent in the tax system, some level of disputation may be unavoidable on tax technical matters. In the 2010-11 financial year, the ATO reported 434,000 active compliance activities with liability adjustments and some 17,400 objections in relation to income tax. In viewing these statistics, it is important to appreciate that a significant portion of the 434,000 may be small adjustments resulting from data matching activities which do not often lead to dispute.

While stakeholders accept that there will be occasions where disputes arise, they contend that the vast majority of disputes should be capable of resolution without resort to formal channels such as the objection and litigation processes. Indeed, statistics provided by the Administrative Appeals Tribunal show that approximately 90 per cent of applications for review in tax matters are resolved prior to hearing. This suggests significant opportunity for greater engagement to resolve disputes and reduce unnecessary costs for taxpayers and the ATO alike.

The review attracted strong interest with submissions received from a broad range of stakeholders including taxpayers, tax practitioners and their representative bodies, dispute resolution experts and members of the judiciary. Additionally, having regard to the Federal Government’s broader strategic framework for access to justice, the relevant staff at the Attorney-General’s Department and members of the National Alternative Dispute Resolution Advisory Council (NADRAC) have been consulted.

During the investigation I observed that, at a high level, the ATO is committed to engaging with taxpayers to resolve disputes earlier. I have noted some examples in which the ATO’s early engagement and appropriate use of ADR has assisted to resolve matters in dispute either wholly or partly without the need for litigation.

However, and notwithstanding the ATO’s high level commitment, a number of the cases raised in submissions, and which were examined in this review, indicate a variance in the taxpayer experience when seeking to engage with the ATO to resolve disputes.

Some concerns raised in earlier reviews were again brought to my attention in this review. A common theme seems to be a perceived lack of independence in the objection process, particularly in relation to larger more complex matters. I have sought to address this, in line with my submission to the 2011 Federal Government’s Tax Forum, by proposing that the ATO pilot a separation of its objection and litigation functions from its audit function in the management of its most complex disputes.

I have identified a number of other opportunities for improvement aimed at encouraging and empowering earlier engagement to reach a common understanding of the issues in dispute and the most appropriate means of resolving any such dispute. A key aspect is ensuring that all parties possess the necessary information to understand the issues in dispute and the different techniques and practitioners available to assist in resolving those issues.

In total, twenty-two recommendations have been made. The ATO has agreed in full with fourteen, agreed in part with four, agreed in principle with two and disagreed with one. The remaining recommendation (recommendation 5.5) is directed at government.

The effective implementation of the agreed recommendations should result in significant improvements in the way the ATO seeks to resolve tax disputes. However, given the disagreement on one major recommendation and the partial or qualified response to a number of other recommendations, the impact of this report and its recommendations may not be fully realised.

I offer my thanks for the support and contribution of professional bodies, industry associations, taxation practitioners, dispute resolution experts, members of the judiciary and individuals to this review. The willingness of many to provide their time, expertise and experience in preparing submissions and discussing issues with myself and my staff is greatly appreciated. I also thank the relevant ATO officers for their professional cooperation and assistance in this review as well as officers of other Government agencies such as the Attorney-General’s Department and NADRAC.

Yours sincerely

SIGNED

Ali Noroozi
Inspector-General of Taxation


© Commonwealth of Australia 2012

ISBN 978-0-642-74819-5

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