The ATO Letter …
So – you have received a letter from the ATO.
- You may have forgotten to lodge a number of BASs.
- You might owe them money.
- They may be interested in a transaction that you have been party to – for example, the sale of land.
The ATO letter probably includes words and phrases like ‘risk review’, ‘audit’, ‘interest’, ‘penalties’, ‘payment arrangement’, and ‘Taxpayers’ charter’. The letter probably also talks about wanting to help you comply, and will encourage you to make contact as soon as possible.
What Do You Do Next?
First, do not panic. Almost every issue can be resolved sensibly and without any significant penalty to you; and you are almost certainly not the ATO’s biggest concern.
Second, doing nothing is not an option – you do not want to become one of the ATO’s biggest concerns! The ATO will not go away, their letters will become firmer, and they have vast powers. They can demand information from you, they can go ahead and make a tax assessment against you, and they can impose significant penalties on you. The ATO may also be encouraged to widen the scope of their inquiries to cover all of your affairs – suddenly a question about a property transaction that is easily answered has turned into a line-by-line inquisition about your business, and in some instances, your family and business associates.
Third, do not pick up the phone to the ATO if you are not calm. You may need to deal with the same ATO officer over a number of months, and you do not want to start on the wrong foot.
Fourth, take stock of the situation – gather your documents and try to put together an objective picture of the facts. What has happened? Might you have done something wrong? Why does the ATO think you have done something wrong? Do you think your accountant has done something wrong? (He or she may have, but as when dealing with the ATO, there is little point in venting anger at him or her because you will probably need their ongoing assistance). Has there been an innocent mistake?
Solving the Problem
After you understand the issue, you need to work out how you want to proceed. Will you deal with the ATO yourself or will you obtain help from a person experienced in dealing with the ATO?
The tax and superannuation laws now span 9,000 pages and are complex. You might know your way around a quarterly BAS, but do you have an understanding of how the tax law applies in your circumstances? Your accountant might do a brilliant job in preparing your income tax return, but is he or she used to making written submissions to the ATO in a format that is persuasive to them? Usually, a detailed analysis of the law or ATO Rulings is required when responding to the ATO.
An understanding of the ATO’s approach and the reasons for any review assists in the responding to the ATO. If an ATO officer detects from a taxpayer a willingness to resolve an issue, the ATO usually demonstrates a desire to be reasonable and fair. Most ATO officers genuinely want to correct a taxpayer’s affairs for now and in the future. The Commissioner of Taxation has instructed ATO officers to take this approach.
However, in practice, not everyone’s dealings with the ATO go smoothly. Why? The Australian Public Service Commission’s most recent ATO capability review noted that the ATO is risk averse. The APSC also observed that when the Government puts pressure on the ATO deliver, the ATO goes into crisis mode.
Sometimes, ATO officers like to take their time and do not like being challenged. Meanwhile, the taxpayer is wanting the review to conclude in order to satisfactorily continue their personal and business affairs; many people find that the cloud of an ATO review is restrictive. There are ways to hasten the ATO’s agenda.
On a day-to-day level, some situations that are common within the ATO, and which may in turn impact you, are:
- There may be pressure on the officer who has written to you to finalise a specific number of cases within a particular timeframe.
- The officer handling your payment arrangement may need to complete telephone negotiations in a specified time to meet call handling targets.
- The officer may have a revenue target to meet because the Government is leaning on the Commissioner of Taxation to bring in more revenue – this creates a chain of pressure in the ATO.
- The ATO officer might think they understand the law, but they may never have dealt with a taxpayer’s particular circumstances before. Sometimes, ATO officers jump to the wrong conclusions about a taxpayer’s circumstances resulting in an incorrect application of the tax law. Such an error can be corrected through persuasion or escalation, but the process can be painstaking and time consuming.
- Different parts of the ATO may in fact disagree about how a particular issue should be treated. Or the ATO and Treasury might disagree.
Events within the ATO are not your problem, but they can result in a review taking an inordinately long time to complete – this can translate into a loss in profit by being absorbed in an ATO audit or review for many months, sometimes years. You probably do not like the idea of being someone’s target, someone’s on-the-job training, or someone’s political football. But unfortunately you cannot choose your ATO auditor or debt officer, or the technical “experts” assigned to your case, and nor do you know what is going on behind the scenes.
Properly managing the ATO review or audit process will result in less “down-time” or loss of profits; invariably, this translates into less stress by satisfactorily resolving the ATO’s concerns and allowing the ATO officer to move onto the next case.
Need More Help?
Nexia Duesburys Tax Consulting Division of Michael Bannon and Mark O’Shaughnessy have all worked at senior levels in the ATO – a combined 40 years of ATO experience.
We have assisted many taxpayers and businesses in efficiently and effectively resolving reviews, audits and disputes with the ATO. We also have expertise in lodging objections, appeals to the Administrative Appeals Tribunal and lodging Private Ruling requests with the ATO.
We are ready to manage and resolve any issue that you may have with the ATO.
Michael Bannon, Partner, Taxation Consulting