6. Test case litigation program

Since the mid 1990s, taxpayers have been able to apply for test case funding of their litigation expenses. This is only available where the case raises issues of uncertainty or contention about how the tax and superannuation laws operate that may be of significant community interest.

Some test cases do not proceed and are finalised prior to hearing. Since 2007-08, 10 cases were finalised prior to hearing, 3 were conceded by the taxpayer, 6 conceded by the ATO and 1 settled. See figure 6.1.

In 2009-10, there were slightly more applications received compared to other years, plus an increase in cases where funding was declined. See figure 6.2.

There is no particular pattern of favourable or unfavourable outcomes in test case decisions. See figure 6.3. Given the intent is law clarification, the litigation is intended to have the desired effect of clarifying the law for the community through a judicial decision.

Specific criteria are used to assess the applications for test case funding. Applications are approved when it is clear that a case is the appropriate vehicle to test an issue that:

  • is of significance to a substantial section of the public or has significant commercial implications
  • is contentious and requires judicial clarification
  • is in the public interest.

Applications are declined by the test case litigation program when they do not meet the funding criteria.

The Test Case Litigation Panel recommends cases to receive funding. It has 5 members; 3 are external accounting and legal professionals, and 2 are senior ATO officers. The external members are Hon Kevin Lindgren AM QC, former Federal Court judge, Peter Poulos, partner Maddocks Lawyers and Graeme Wade, accounting consultant Hamilton Morello. The two ATO panellists are Andrew England, Chief Tax Counsel and Chair; and Peter Chochula, Senior Assistant Commissioner and Deputy Chair.

11 cases were determined by the Chair without reference to the panel for 2011-12. This figure is the same as the previous year, covering urgent applications and cases we initiate. 9 cases were determined on a policy funding basis without the taxpayer submitting an application, 2 taxpayers submitted an application for funding and we declined funding in both cases.

In 2011-12, there were 14 judicial decisions on test cases. Of these, 12 led to law clarification and 2 resulted in government announcing law change.

The ATO discontinued 3 cases in the court in 2011-12 after further litigation risk analysis was undertaken. These cases were funded under our policy to generally fund cases where we appeal against an adverse AAT decision and for an ATO special leave application in the High Court. The more detailed analysis resulted in the strategic decision to discontinue these cases.

Trends 1 July 2007 to 30 June 2012

Figure 6.1 Total applications for test case funding

Figure 6.1 Total applications for test case funding

Figure 6.2 Applications for test case funding considered by the Test Case Litigation Panel

Figure 6.2 Applications for test case funding considered by the Test Case Litigation Panel

Figure 6.3 Test case results

Figure 6.3 Test case results

    Last modified: 15 Feb 2013QC 26462