Since the mid-90s, taxpayers have been able to apply for test case funding of their litigation expenses where the case raises issues of uncertainty or contention about how the tax and superannuation laws operate that may be of significant community interest.
In 2009-10, there were slightly more applications received compared to other years accompanied by a spike in declined cases, see figure 5.2.
Unfortunately, some test cases do not proceed and are finalised prior to hearing. In the past 5 years, 6 cases were finalised prior to hearing: 4 were withdrawn by the taxpayer, 2 conceded by the ATO and 1 settled, see figure 5.1.
There is no particular pattern of favourable or unfavourable in the test case decisions, see figure 5.3.
An important measure of success is whether the law was clarified. The 12 test case decisions in 2010-11 have resulted in the law being clarified in 8 cases (67%) and the government has announced law changes in respect of the other 4 decisions.
The Test Case Litigation Panel has 5 members - 3 external accounting and legal professionals, and 2 senior ATO officers (who are the Chair and Deputy Chair). The panel provides independent advice on the merits of applications for test case funding and on the significance of the issues to the community, see figure 5.2.
In some cases, the Chair or Deputy Chair determines applications without referral to the panel (11 cases in 2010-11). This includes where an urgent decision on funding is required or where a case falls clearly within a funding policy. It includes most matters where the ATO has sought special leave to appeal to the High Court and appeals on adverse AAT decisions to the Federal Court.
The main reasons for declining applications are that they were either:
- likely to be determined by applying established legal principles to facts
- not of significance to a substantial section of the public
- cases where the applicant was attempting to gain a benefit not intended by the law.
Trends 1 July 2007 to 29 February 2012
Figure 5.1 Total applications for test case funding
Figure 5.2 Applications for test case funding considered by the test case litigation panel
Figure 5.3 Test case results