• 1. Overview of litigation

    At a glance

    The Australian tax and superannuation systems are self-assessment systems where most of the 47 million forms submitted every year are not adjusted by the ATO. The overwhelming majority of interactions with the ATO are not disputed, however where a dispute does arise, most are resolved early and quickly through direct communication and negotiation. Where appropriate, alternative dispute resolution (ADR) techniques including conciliation, mediation, facilitation and case conferencing, are also used to resolve disputes.

    In 2011-12, there were about 34,000 objections lodged, most (about 27,000, or 80%) were objections to income tax assessments. This is less than 1% of around 16 million income tax returns lodged. See diagram 1.1.

    Litigation is a small but very important part of the tax and superannuation systems, recognising taxpayers' rights to have ATO decisions independently reviewed. Most taxpayer litigation1 (64% in 2011-12) concerns challenges to their income tax assessments. See diagram 1.1.

    Tribunals are the preferred venue for most taxpayers, especially individuals, micro and small business seeking independent review of ATO decisions. About 86% of cases lodged in 2011-12 and about 81% (763) of cases in progress at the end of 2011-12 were tribunal cases2. Tribunal review is intended to be a low cost and less formal review process, and it can also be confidential. The majority of appeals to courts and tribunals are finalised prior to hearing. See figure 1.1.

    Large business taxpayers prefer to lodge appeals to the Federal Court. See table 1.1.

    The majority of decisions by the tribunals and courts are favourable to the ATO (65% in 2011-12.) See figure 1.2. Very few cases are appealed (less than 5%).

    The number of cases declined steadily between 2007-08 and 2009-10, as mass-marketed scheme-related cases were finalised. In 2010-11 and again this year, numbers have started to increase, partly reflecting increased ATO compliance activity (data matching, cash economy benchmarking, and refund integrity) as well as excess superannuation contribution matters. Table 1.1 provides details of 2011-12 litigation in progress by venue and market segment. There has been a reduction of 138 cases in litigation in progress compared to 2010-11. This reduction is across the AAT, Federal Court, Full Federal Court and High Court.

    Diagram 1.1 Snapshot of income tax 2011-123

    Diagram 1.1 Snapshot of income tax 2011-12

    In the same year, other litigation initiated by taxpayers involved:

    • goods and services tax (18%)
    • superannuation (17%)
    • excise (1%).

    Figure 1.1 Cases (courts and tribunals)

    Figure 1.1 Cases (courts and tribunals)

    Figure 1.2 Decision results (courts and tribunals)

    Figure 1.2 Decision results (courts and tribunals)

    Table 1.1 2011-12 Litigation in progress

     

    First instance

    Appellate courts

     

    Market segment

    Tribunals

    Federal Court First instance

    Federal Court from AAT

    Full Federal Court

    High Court

    Total

    Not for profit & Government

    8

    1

    -

    -

    -

    9

    Individuals

    357

    45

    4

    3

    1

    410

    Micro enterprises

    269

    25

    8

    6

    -

    308

    Small-to-medium enterprises

    110

    27

    7

    5

    1

    150

    Large business

    19

    36

    -

    4

    3

    62

    Total

    763

    134

    19

    18

    5

    939

    Total of first instance

    897

    Total of appellate courts

    42

    Note: There may be some instances where a small number of cases will go directly to the appellate courts. This excludes 2 cases in the supreme and magistrates courts.

      Last modified: 15 Feb 2013QC 26462