On 10 October 2022 the Inspector General of Taxation (IGOT) released an interim report into the Australian Taxation Office's administration and management of objections. The report opens the lid on the ATO's handling of objections, with 226 pages of detailed statistics on how long objections take to resolve, the outcome of those objections and how this varies across different markets.
The interim report provides transparency on the handling of objections by the ATO. Whilst it points to issues associated with delay and resourcing, it should also provide the Australian community with confidence that, when managed correctly, the objection system does provide a genuine avenue for taxpayers to resolve tax disputes with the ATO. Whilst there will be many specific insights that will be able to be gleaned by the information now presented in IGOT's preliminary report, this article focuses on three of those insights that will be relevant to public and multinational businesses.
Delay in the handling of objections
Starting with the not so good news and something we knew from experience anyway: objections take a long time, particularly in the public and multinational space. IGOT reports that the average duration of objections over the past three years is 296 calendar days. That is significantly longer than the average duration in other markets.
The IGOT also observes that resolution of objections relating to ATO compliance action appears to take the longest (with FY21 breaking this trend with the resolution of a particular cluster). However, as much as we may complain about delay, and it would be ideal to have a system that resolved cases faster, at the same time we do not want a system that simply rushes to a decision. The cases in this market are complex, both technically and factually, and the longer resolution period reflects this.
Low number of cases, but high proportion of ATO compliance decisions
The second observation is that the number of objections reported in relation to the public and multinational market is low, and even lower when you look at the number of objections related to ATO compliance action. The IGOT identifies that most objections are self-objections, which is a topic in itself. In the financial years FY19 and FY20 there were only 83 and 81 objections respectively in respect of ATO compliance action. The figure for FY21 was higher at 191, but IGOT observed that included a substantial number of objections against COVID-19 economic response measures. Although the number appears small, it comes off a very small base of audits. This suggests a significant proportion of adverse audit outcomes in the public and multinational market are proceeding to objection, higher than in other markets.
The majority of outcomes are favourable
Finally, we look at the outcome of these objections, and the news here is good. Over the past three years the IGOT's statistics show that majority of objections that were determined (as opposed to withdrawn) in respect of ATO compliance action were determined favourably, in whole or in part, for the taxpayer. In addition, a significant proportion of objection outcomes, were withdrawn objections. Whilst the IGOT highlights that there may be many reasons for an objection to be withdrawn, this category could cover objections where a settlement was reached or the taxpayer reached some other resolution.
The conclusion to be drawn, as evidenced by these statistics, is that not only is it possible to achieve a favourable outcome through the objection process, a significant proportion of taxpayers are achieving these outcomes. This reflects our experiences when assisting clients with well-presented cases supported by evidence. Even though it is not covered by the report, even where the objection is disallowed, a well argued and substantiated objection lays the platform for subsequent success or settlement in any litigation.
So in short, whilst the report observes that the objection process for public and multinational businesses is not quick, there is good news for the majority of businesses that engage with the process. However, these outcomes do not arise by chance. Cases need to be substantiated with evidence, carefully argued and presented in manner which enables the ATO to engage with the issues being raised.