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Appealing Against The ATO

To Appeal or Not To Appeal?

That is the question.  And though it is not uncommon for taxpayers to object to assessments issued by the ATO, legal proceedings are a different proposition altogether.

Proceedings will require documents, directions, pre-trial actions and in the end a hearing.  These will happen in either the Administrative Appeals Tribunal (AAT) or the Federal Court.  Changes are afoot for these matters to be dealt with in a more speedy manner than in the past.

As with any type of court action, due consideration should be given to time, cost, pros and cons, and likely outcome.  In many cases a small cost for good initial advice can save lots of money and heartache further down the track.  Legal action should be looked at like any other business decision.  A cost/benefit analysis should be undertaken upfront.

In determining whether to issue legal proceedings in relation to an objection, consider the following;

Evidence and Strength of Argument

You must have a sound legal base and the evidence to back up the position you are taking.  Like any court case the judges will be considering the evidence that is available to prove the necessary facts.  Your evidence should be written or well documented.  Even the strongest legal cases do not succeed due to lack of evidence.  Advisors should always keep written notes, and you as the taxpayer should make sure all advice is received in writing.  Due analysis should also be given to interpretation of the tax legislation, and this is where differences will often arise.

 

Amounts Involved

How much money in tax and penalties is involved will be a prime consideration.  The greater the amount the more likely you are to proceed, when weighed with the prospects of success.

 

Test Cases & Costs

Litigation is expensive.  As tax litigation involves arguments about the tax law, and not requiring a series of witnesses giving evidence, this type of case tends to be shorter and cheaper than others.  A successful applicant can recover costs, but generally only a proportion.

The ATO have a test case fund which can be accessed, and this can result in little or no out of pocket expense, and is worthwhile for those who may not otherwise be able to afford litigation.

 

Risk

There is an inherent risk in any form of litigation.  There is no certainty with legal arguments, and consideration should always be given to the prospects of success.

 

Stress

Litigation is a stressful process.  Always weigh the impact of business and family life, and health.

 

Business Impact

Undertaking litigation will most definitely take you away from your business.  Not only physically, but it will also take up your time when you are in the office.  Most of the work will be undertaken by your accountant, but you will still need to take time finding and providing records, and having meetings.  Also, in most cases there are subsequent appeals (especially if the ATO loses at first instance), which will prolong the process.

 

Penalty Interest

The longer the case goes, and if you have not made the payment upfront then commenced the process, you will continue to accrue penalty interest at the ATO rate in excess of 13% pa.  Depending on the objection and subsequent appeals, this can be a few years of accrued interest.  As always you should try to resolve the issue with the ATO before commencing proceedings.

 

To Proceed of Not?

In many cases taxpayers are advised not to proceed.  A good lawyer will take all the various considerations into account, before advising which way to go.

As stated earlier, litigation is a business decision.  You should make sure you do your homework before proceeding.

Source: In The Black, CPA Australia, June 2008