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Working with the Australian Taxation Office (ATO) to achieve targeted outcomes for our clients has never been an easy process.

Over the years we have heard many theories on how to best conduct tax matters, from extended fights, to early engagement.

That aside, with “priority litigation” continuing to rise from ATO JobKeeper reviews, clients now face further concerns around result efficiently, and degree of success.

What it all essentially comes down to is:

  • the strength of a client’s case;
  • the amount at stake; and
  • in early engagement outcomes, the profile or perception that early decision makers at the ATO form of a client.

Consider the following scenarios:

client 1
The taxpayer was a SMSF, approached by an advisor (known to the ATO) with a tax scheme that had no prospects of success. The ATO has said that they will be commencing a review and have asked for additional information. The scheme involved around $1 million in non-arms length income over some years. In addition to income tax considerations, there are potential SIS Act breaches, some possibly attracting criminal prosecution.

In this scenario, Client 1 clearly has a case for voluntary disclosure, specifically to seek a reduction in penalties and potentially interest. This reduction is automatically 80% of the shortfall amount if disclosed before the earlier of ATO audit notification or the closing date on an invitation to voluntarily disclose to the ATO.

The Commissioner also has the discretion to treat a later disclosure as having been made earlier, otherwise, there is still a 20% reduction available for disclosures made later, where the timing of the disclosure has allowed the Commissioner to save significant time and resources in conducting an audit.

Our ‘angle’ for Client 1, would be to recognise that the client has already suffered significant damage at the hands of the scheme advisor and rather than further punishment, it is reasonable to seek to mitigate that damage.

This may translate into painting the scheme advisor as an ‘enemy-in-common’ with us being left to sort through the mess.

client 2
The taxpayer’s brother legally and beneficially owns a business in a no-tax foreign jurisdiction. The taxpayer, although a national of that jurisdiction (was born and spent most of his life there) resides in Australia. The taxpayer has received significant investment monies (tens of millions) over the years on behalf of his brother from the profits of that business to invest in Australian real estate. The business profits are a credible and very likely explanation for the source. After a lengthy audit and review, the taxpayer was assessed on both inflows and Australian intra-group movements of investment capital, as personal income. It has been asserted that there are serious conceptual flaws in the ATO’s calculation of the amount in dispute.

In this instance, the ATO has taken a view of the law separate to the view of Client 2.

Client 2 believes that the ATO has made serious accounting errors, by using an unconventional (hybrid asset-betterment) approach.

Here we are not so interested in how the ATO may have profiled our client, but more interested in driving up the ATO perception of their own ‘litigation risk’.

This is in the interests of achieving a more efficient, attractive settlement for the client, and, if it does proceed to litigation, to reduce the amount that the parties are in dispute over to an amount approximating what the client has actually lived on, for his own and his family’s benefit.

No matter the circumstances for working with the ATO, at the end of the day we are dealing with people, and our interactions can have significant consequences in altering our outcomes.

It is important to note that there will be a tendency for the ATO to attribute our attitudes to our client, and for this reason, there is an importance of staying respectful and professional in all dealings.

If you’d like to know more, please contact our Tax team.

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How to deal with the ATO

13 April 2021
prianca maharaj

Working with the Australian Taxation Office (ATO) to achieve targeted outcomes for our clients has never been an easy process.

Over the years we have heard many theories on how to best conduct tax matters, from extended fights, to early engagement.

That aside, with “priority litigation” continuing to rise from ATO JobKeeper reviews, clients now face further concerns around result efficiently, and degree of success.

What it all essentially comes down to is:

  • the strength of a client’s case;
  • the amount at stake; and
  • in early engagement outcomes, the profile or perception that early decision makers at the ATO form of a client.

Consider the following scenarios:

client 1
The taxpayer was a SMSF, approached by an advisor (known to the ATO) with a tax scheme that had no prospects of success. The ATO has said that they will be commencing a review and have asked for additional information. The scheme involved around $1 million in non-arms length income over some years. In addition to income tax considerations, there are potential SIS Act breaches, some possibly attracting criminal prosecution.

In this scenario, Client 1 clearly has a case for voluntary disclosure, specifically to seek a reduction in penalties and potentially interest. This reduction is automatically 80% of the shortfall amount if disclosed before the earlier of ATO audit notification or the closing date on an invitation to voluntarily disclose to the ATO.

The Commissioner also has the discretion to treat a later disclosure as having been made earlier, otherwise, there is still a 20% reduction available for disclosures made later, where the timing of the disclosure has allowed the Commissioner to save significant time and resources in conducting an audit.

Our ‘angle’ for Client 1, would be to recognise that the client has already suffered significant damage at the hands of the scheme advisor and rather than further punishment, it is reasonable to seek to mitigate that damage.

This may translate into painting the scheme advisor as an ‘enemy-in-common’ with us being left to sort through the mess.

client 2
The taxpayer’s brother legally and beneficially owns a business in a no-tax foreign jurisdiction. The taxpayer, although a national of that jurisdiction (was born and spent most of his life there) resides in Australia. The taxpayer has received significant investment monies (tens of millions) over the years on behalf of his brother from the profits of that business to invest in Australian real estate. The business profits are a credible and very likely explanation for the source. After a lengthy audit and review, the taxpayer was assessed on both inflows and Australian intra-group movements of investment capital, as personal income. It has been asserted that there are serious conceptual flaws in the ATO’s calculation of the amount in dispute.

In this instance, the ATO has taken a view of the law separate to the view of Client 2.

Client 2 believes that the ATO has made serious accounting errors, by using an unconventional (hybrid asset-betterment) approach.

Here we are not so interested in how the ATO may have profiled our client, but more interested in driving up the ATO perception of their own ‘litigation risk’.

This is in the interests of achieving a more efficient, attractive settlement for the client, and, if it does proceed to litigation, to reduce the amount that the parties are in dispute over to an amount approximating what the client has actually lived on, for his own and his family’s benefit.

No matter the circumstances for working with the ATO, at the end of the day we are dealing with people, and our interactions can have significant consequences in altering our outcomes.

It is important to note that there will be a tendency for the ATO to attribute our attitudes to our client, and for this reason, there is an importance of staying respectful and professional in all dealings.

If you’d like to know more, please contact our Tax team.