• 9. Legal costs

    Litigation is expensive, so we continue to seek to resolve disputes as early as possible.

    The ATO engages external legal providers for litigation and legal advisory work in relation to revenue collection, tax and superannuation law interpretation, and non-tax law matters such as employment law and FOI. Legal services expenditure by the Tax Practitioners Board (TPB) is also included.

    This section only refers to the ATO's legal costs because we do not have information on taxpayers' costs or those of the tribunals and courts. Also, these costs include other legal services work.

    In 2011-12, we spent about $96.4 million on these legal costs, comprising $36.8 million on our staff costs and $59.6 million on external legal services. The ATO recovers some legal costs each year. In 2011-12, the total amount of costs recovered was over $3.5 million. See figure 9.1.

    There is an increase of $8.4 million for total legal expenditure in 2011-12 compared to 2010-11. This increase is mainly due to increased debt litigation arising from the Firmer Action strategy, as well as an increase in costs awarded in matters favourable to the taxpayer.

    The decline in costs of test case funding reflects the decline in cases being approved for funding. See figure 9.2.

    There is no consistent trend in the expenditure for costs awarded. The notable increase in 2010-11 resulted from the finalisation of significant cases which had material costs involved. See figure 9.3.

    Trends 1 July 2007 to 30 June 2012

    Figure 9.1 Expenditure on legal services (including provision of advice, litigation and related services)

    Figure 9.1 Expenditure on legal services (including provision of advice, litigation and related services)

    *Professional fees include fees charged by external legal services providers for the work undertaken by their solicitors. Total GST component credit for external legal services in 2011-2012 (including TPB legal expenditure) $5,421,002:

    • External expenditure on counsel - $1,658,636
    • Other disbursements on external legal services - $1,069,435
    • External expenditure on professional fees - $2,692,931.

    Figure 9.2 Expenditure on test cases

    Figure 9.2 Expenditure on test cases

    Figure 9.3 Costs awarded

    Figure 9.3 Costs awarded

      Last modified: 15 Feb 2013QC 26462