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Is the Australian Taxation Office (ATO) looking into the taxation affairs of your business? The ATO will often do this if they perceive any risk that may require any further examination. Among other things, this may include verifying the accuracy and integrity of your lodgements for income tax claims activity statements. This article will outline what you can expect when it comes to ATO investigations and what you can do about them.

ATO Reviews

One of the initial steps the ATO may undertake when looking into you and your business’ tax affairs is to conduct a review. The objective of the review process is for the ATO to: 

  • obtain an understanding of the issues of concern relating to your business; and 
  • determine if there are tax issues that may require a more in-depth examination and response. 

When conducting a review, the ATO will generally make contact to inform you of the basis of its inquiry. The ATO will also likely request from you, on an informal basis, further information that relates to your tax affairs. This may be any lodgements or information you have made with the ATO that is the subject of its investigations. Such information may include:

  • financial statements; 
  • schedules; 
  • agreements/contracts; 
  • tax reconciliations; and 
  • other source documents (e.g. a copy of your or your suppliers’ tax invoices).

The ATO may also seek to exercise some of its formal powers when seeking information from you. Such information may be in the form of documents or through a formal interview with you. Responding to these requests is mandatory.  

It is at this stage that the ATO will strongly encourage open cooperation from you or your business, as the taxpayers. They will encourage you to make any voluntary disclosures to correct lodgements or other information you have made with, or given to, the ATO. Doing so may: 

  • resolve the ATO’s concerns; 
  • prevent any investigations from escalating into a formal audit process; and 
  • result in significantly reduced penalties should you have any consequential tax liabilities following your voluntary disclosures.  

ATO Audits

Suppose that the ATO does not satisfy itself with the risks identified in you or your business’s tax affairs during the review process. Then, it may escalate its investigations into a formal audit. Most audits are escalated from a review. However, the ATO may proceed straight to audit if they are of the view that its concerns relate to significantly high-risk matters. This includes complex transactions or instances where the ATO suspects fraud or evasion.  

The audit process involves a more in-depth examination of the initial concerns, issues and risks identified by the ATO. It also includes the examination of any other consequential issues the ATO considers relevant following the review process. The ATO’s audit consists of a more formal process that will generally involve the following.

1. Communicating With the Taxpayers or Their Representatives 

This could include accountants, tax agents and legal representatives. The ATO will schedule an initial meeting with you and your representatives to inform you of the audit and what you can expect during this process. You can expect the ATO to make numerous contact with you or your representatives during its audit.  

2. Collection of Further Information

The ATO will endeavour to work cooperatively and informally with you, particularly in requesting any further information they may require. However, you can also expect the ATO to use more of its formal powers to request information from you and third parties. Failure to properly and duly comply with these formal requests for information is a criminal offence. It can also lead to a more protracted audit process and higher penalties imposed if the audit results in additional tax liabilities being assessed against you.  

3. Issuing You With a Formal Document That Sets Out Their Position

Once the ATO has come to a preliminary position regarding you or your business’ tax affairs, it will usually issue you with its position paper. This document will generally set out:

  • the available facts gathered by the ATO (from the documents they have collected from you and third parties);
  • the issues identified by the ATO and the ATO’s findings in respect of each of them;
  • your contentions, being your response and position to each of the issues identified by the ATO;
  • the relevant laws and how the ATO perceives them to apply in your particular circumstances;
  • details of any proposed assessments or proposed amended assessments arising from the audit;
  • details of any penalties to be imposed, and the reason for their imposition. However, the ATO may decide to make penalties the subject of a separate position paper, issued at a later stage; and
  • contact details of the relevant tax officer with who you can discuss your matter.  

Following receipt of the position paper, the ATO will generally allow you to comment and respond to each of the matters raised in it. The ATO will consider your response before making its final decision, which will be communicated to you separately in a document that is generally known as the ATO’s reasons for decision.  

Amending Assessments and Penalties

The audit process may lead the ATO to conclude that you should be assessed with additional tax liabilities. In that case, the ATO will issue you with an assessment or amendment assessments. It is at this stage, or shortly thereafter, that the ATO will issue you with assessments concerning the penalties imposed in connection with your additional tax liabilities.  

Objecting to Your Tax Liabilities

If the ATO has assessed you with additional tax liabilities that you are dissatisfied with, you can object and challenge them. This may be if you believe that they are excessive or otherwise incorrect. 

Part IVC of the Taxation Administration Act 1953 (Cth) sets out the procedures to challenge tax decisions made under Commonwealth tax legislation (as opposed to tax liabilities imposed under state legislation, such as payroll tax).       

The first step you will need to take is to lodge a written objection with the ATO. The objection must be in writing and made within the prescribed time limit, which will depend on the type of assessment or tax liability you are objecting to.

For example, you must generally make objections to an amended income tax assessment within 60 days of the ATO issuing you with those assessments.  

Your objection should include your reasons for why you believe that the subject assessments are excessive or wrong. This will usually involve a combination of accounting and legal arguments supported by additional source documents that support your objection.  

Your objection will then be directed to a different department with the ATO to be determined (i.e. a different team than those who conducted your audit). The ATO does not have a prescribed timeframe in which they can determine your objection. However, certain ways may speed up that process.

Once finalised, the ATO will then advise you of their objection decision in writing. At this stage, the ATO may either allow, partly allow, or disallow your objection.  

Still Unsatisfied With the ATO’s Objection Decision?

If you are still dissatisfied with the ATO’s objection decision, then you may seek a review of that decision. You can do this before the Administrative Appeals Tribunal or appeal it before the Federal Court. You must make this application within 60 days of receiving the ATO’s objection decision.  

A review before the Tribunal or an appeal to the Federal Court will be similar to what you can expect in any Court proceeding. It will involve numerous stages and will require you to properly set out your: 

  • claims;
  • contentions; and 
  • what you believe to be the correct decision.  

You will also need to prepare compelling evidence in support of your position. This process will often involve a team that will consist of your:

  • legal representatives;
  • accountant; and 
  • tax agent.  

It is important to note that as the taxpayer, you will have the burden of proving that the assessments complained of are excessive or otherwise incorrect.  

Key Takeaways

The best way of resolving disputes involving ATO investigations is to attempt such resolution from the beginning, during the early stages of the ATO’s investigation. If you need assistance with an ATO investigation dispute or with the objection process and proceedings, contact LegalVision’s taxation lawyers on 1300 544 755 or fill out the form on this page.  

Frequently Asked Questions

What is the ATO?

The Australian Taxation Office, or ATO, is the Government’s principal revenue collection agency. They ensure that individuals and companies are complying with their tax obligations and look into tax evasion and fraudulent behaviour.

What is the objective of the review process?

The purpose of the review process is for the ATO to gain an understanding of the issues of concern relating to your business and to allow them to determine if there are tax issues that may require a more in-depth examination and response. 

What documents might the ATO seek when conducting a review?

They might request lodgements or information you have made with the ATO that is the subject of its investigations, including financial statements, schedules, agreements/contracts, tax reconciliations and other source documents.

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