Code of settlement practice

Meaning of settlement

10. This Code is directed at circumstances where a decision is taken to settle a disputed liability or entitlement in cases where, having regard to a range of factors, it is in the best interests of the Commonwealth to do so.
11. For these purposes, a 'settlement' is defined at paragraph 2.
12. A 'dispute' includes a formal dispute between the parties about a taxation liability or entitlement, such as an objection. It also includes disputes that arise prior to formal assessments being raised, such as following a taxpayer's consideration of the ATO's position paper. A dispute that is covered by the Code would ordinarily only be one where the taxpayer has (or will have) a right to object against the Commissioner's decision in relation to the liability or entitlement.
13. A reference to a disputed 'liability or entitlement' in this context includes tax², penalties, payments³, notional tax on losses, franking credits and debits, foreign tax credits, credits and refunds of indirect taxes, general interest charge, shortfall interest charge and interest.
14. The Code is not directed at circumstances where the Commissioner enters into arrangements in connection with an established taxation liability in a debt recovery context. Situations may also arise in the course of particular debt recovery litigation that may warrant the Commissioner giving consideration to settling the matter. Examples include:

• director penalty matters (relating to penalties incurred under Division 269 of Schedule 1 to the Taxation Administration Act 1953 (TAA) and previously under Division 9 of Part VI of the Income Tax Assessment Act 1936 (ITAA 1936)
• actions commenced by a liquidator against the Commissioner in relation to an unfair preference or other voidable transaction
• cases where the Commissioner seeks indemnity from a company director pursuant to section 588FGA of the Corporations Act 2001 - these cases would not involve a settlement in terms of this Code. However, they should be fully documented and the decision approved by a delegate or appropriately authorised officer.

Sections within Part 2: Factors affecting settlement

• Meaning of settlement
• Disputes as to quantum
• Borderline questions of law and fact
• Legal basis for settlement
• The good management rule
• When settlement discussions may occur
• Circumstances where it would be generally inappropriate to settle
• Circumstances where it may be appropriate to settle
• Where unrelated issues are involved: global settlements
• Relevance of ability to pay
• Alternative dispute resolution, including mediation
• Settlements and prosecutions
• Treatment of penalties and interest charges