Resolving tax and superannuation disputes

At a glance

We aim to minimise disputes through strategies such as pre-filling information in tax returns. We also aim to resolve disputes as early as possible across all aspects of our work.

Of the 465,000 adjustments made as a result of tax and superannuation audit and review activities undertaken in 2010-11, about 19,300 (4%) resulted in objections.

Most disputes are resolved well before litigation. In 2010-11, 24,255 taxpayers objected against their tax assessment, around 97% of these disputes were finalised at objection stage, and another 2% finalised prior to hearing, see figure 2.1 and 2.2.

Alternative dispute resolution (ADR)

Use of formal ADR is becoming more common in tax and superannuation disputes. This is consistent with wider reforms in the Commonwealth civil justice system4, and with the ATO's obligation to act as a model litigant5. These approaches include mediation, conciliation, case appraisal and evaluation by an independent party.

Conciliation is the most commonly used technique (57% of tax cases) in the Administrative Appeal Tribunal (AAT). Since 1 July 2008, there have been 235 AAT cases that used these approaches and 94 (40%) were resolved. A further 35 (15%) were partially resolved. Most of the remaining 45% were later resolved or ADR was useful in narrowing the issues for a hearing.

Mediation is the most frequently used ADR technique in the Federal Court. In 2010-11, 18 tax matters were referred for mediation: 16 to internal Federal Court mediators and 2 to external mediators such as barristers. 5 of the 16 cases referred to internal mediators have been completed, of which 4 have been resolved.

When the ATO can settle

The Commissioner's statutory responsibilities as the administrator of the tax and superannuation laws restrict how far the ATO can go in settling disputes. Generally the ATO cannot negotiate liability on a commercial basis - we must settle on a principle basis (that is, what is the tax liability) except in certain limited circumstances under the Code of Settlement Practice. This requires balancing the obligation to collect taxes with the obligation to administer the tax and superannuation system in an efficient and effective way.

For example, settlement may be appropriate if the cost of litigating is out of proportion to the possible benefits, including the prospects of success and the likely award of costs. On the other hand, it would generally be inappropriate to settle where the outcome would be contrary to policy reflected in the law or would involve inconsistent treatment for taxpayers.

In 2010-11, 304 disputes were settled under the Code of Settlement Practice involving $747 million reduction in tax liabilities, see figure 2.3.

Trends 1 July 2007 to 29 February 2012

Figure 2.1 Tribunal cases finalised prior to hearing

Figure 2.1 Tribunal cases finalised prior to hearing

Figure 2.2 Court cases finalised prior to hearing

Figure 2.2 Court cases finalised prior to hearing

1 The large number of cases conceded by ATO were 33 related matters associated with one case in a paticular company group and another 7 cases dealt with an offshore superannuation scheme.

Figure 2.3 Registered settlements

Figure 2.3 Registered settlements

1 The ATO's pre-settlement position is the amount the ATO imposed or would have imposed but for the settlement. It is the amount of tax liability, including appropriate remission of penalties and the general interest charge (GIC), that we would raise if a settlement was not reached.

    Last modified: 30 Apr 2012QC 25889