Unless you are a bit of a tax geek like myself, you could be forgiven for missing the release this week of the ATO's annual report. Like any annual report, it goes through the usual stuff such as the achievements of the organisation over the past year and the financial statements. However, what you may find more interesting is the outcomes of various programmes reported on. These provide useful insights into ATO activity and behaviour. In this article I look at the reported statistics on settlement and litigation, which will be of particular interest to anyone currently navigating an ongoing dispute or audit with the ATO.

The key trends revealed in this year's dispute statistics (at page 187) are:

• settlements continue to be dominated by public and multinational businesses client group, but not as much as in more recent times. By number, settlements in this client group comprised of 73 of 475 settlements (15%) and by value of settlement (variance), $475.4 million of a total variance of $1,197.1 million (39.7%);
• the biggest area of growth for settlements has been in the privately owned and wealthy groups market, with the number of settlements increasing from 134 settlements to 206, with the variance jumping from $102.7 million to $279.1 million. This market is also continuing to see higher levels of variance than the public groups market, with an average variance of 42% compared to 30% for public groups;
• of all settlements (i.e. across all client groups), most settlements continue to occur by number at the pre-audit and audit stage, with 369 of 475 settlements occurring pre-audit or at audit. This is contrary to a common perception that settlement is only possible once a case proceeds to objection;
• in terms of cases that have proceeded to litigation, 72% of cases were resolved prior to a hearing, but with only 8.5% of those resolutions being by way of settlement (although that does not include those cases where the ATO or taxpayer will have conceded entirely);
• generally, according to the annual report over the past five years, the greatest variance from the ATO position is achieved in settlement of cases at litigation. On average, over the past five years this has been 60%, but this year it fell to a low of 22%. Based on a trend of a single year, it is too early to say whether this is an anomaly or a product of ATO and taxpayers focussing on settling cases earlier. However, it is certainly something to watch;
• the ATO's overall rate of success in litigation outcomes fell to 62%, with 38% of litigation decisions supporting the taxpayer's position in whole or part. This is materially below the average over the past five years (74%). It is difficult to say whether this is a good thing or a bad thing. A lower success rate could demonstrate the ATO are only litigating cases where there is genuine uncertainty and settling cases where there is genuine litigation risk. Alternatively, it could also evidence the Commissioner pursuing bad cases. On the statistics alone it not possible to draw any conclusion and again this is only a trend of one year.

Overall the statistics support the conclusion that it is possible to successfully resolve matters early at the audit stage, however matters continue to be resolved successfully by taxpayers throughout the dispute continuum. In fact, if you look at the statistics over the past five years, the greatest variance to the original position is achieved by taxpayers in litigation. It demonstrates that taxpayers with well-prepared cases maximise the opportunities at each stage to achieve favourable outcomes.

In the author's experience the keys to success are thorough preparation enabling a taxpayer to demonstrate contentions by reference to admissible evidence, an objective assessment of your own case and prospects (not just the adviser who instigated the transaction), good strategy and finally a detailed understanding of the ATO's approach, process and procedures. If you are looking to favourably resolve an ongoing matter and want an objective assessments of your options please reach out and I would be happy to assist.