• Litigation

    Of the 15.6 million tax returns lodged by taxpayers in 2010-11, following assessment approximately 0.15% were objected against and only 0.005% were litigated.

    Most of the challenges involved amended assessments following an audit. We were successful or partly successful in 63% of decisions in the courts and 91% of tribunal decisions.

    We approach our litigation in accordance with our obligations under the law, including the Attorney-General's Legal Services Directions 2005 (in particular the model litigant guidelines), and relevant court and tribunal rules and directions.

    In 2010-11 there was one breach of the directions and six alleged breaches under consideration by the Office of Legal Services Coordination in the Attorney-General's Department.

    TABLE 4.28: Outcomes of court decisions, 2010-11

    Decision

    Total tax and penalty disputed

    No.

    %

    $m

    All favourable to ATO

    21

    47

    626

    All favourable to taxpayer

    17

    38

    996

    Part favourable to each party

    7

    15

    109

    TOTAL

    45

    100

    1,731

    TABLE 4.29: Outcomes of tribunal decisions, 2010-11

    Decision

    Total tax and penalty disputed

    No.

    %

    $m

    All favourable to ATO

    60

    76

    90

    All favourable to taxpayer

    7

    9

    2

    Part favourable to each party

    12

    15

    44

    TOTAL

    79

    100

    136

    Strategic litigation

    Our most significant cases are generally matters where progress or outcomes are of strategic interest to the community. These may include cases:

    • raising contentious questions of law
    • where there is a significant compliance or revenue risk
    • before the High Court, the Full Federal Court or a state court of appeal
    • involving general anti-avoidance provisions.

    While we have a good success rate overall, some of the cases where we were not successful involved substantial amounts of revenue. Questions regarding the scope of the general anti-avoidance and transfer pricing in the law were foreshadowed in our 2009-10 report. These matters will require continued close attention. See Appendix 5 for more information.

    Test case litigation program

    This program provides financial assistance to taxpayers to clarify issues where there is uncertainty or contention about how the law operates, and it is in the public interest for the issue to be litigated. A test case litigation panel, including external members, considers applications for test case funding.

    This year the panel considered 31 applications for funding - 12 were approved and 19 declined.

    Reasons for declining the 19 funding requests included when:

    • there was no uncertainty or contention about how the law operates, the case was likely to be determined by applying established legal principles to the facts of the case
    • the case was not of significance to a substantial section of the public
    • the applicant was attempting to gain a benefit clearly not intended by the law.

    A number of funding cases were approved without reference to the panel including:

    • five cases where we appealed against a decision of the Administrative Appeals Tribunal
    • one case where we extended funding for appeals for previously funded cases
    • five cases where we sought special leave to appeal to the High Court.

    Total expenditure for the program in 2010-11 was $1,330,068.

    At 30 June 2011:

    • 17 test cases were before the court or tribunal or awaiting a decision
    • 12 test cases had received court or tribunal decisions - eight were found in favour of the taxpayer and four in favour of the Commissioner
    • three were resolved before hearing.

    The Commissioner released decision impact statements concerning each of these decisions, explaining how the laws were clarified.

    Visit our website to see the decision impact statements and our Test case litigation program guide explaining the program.

    Other significant cases

    In addition to the test case funded matters decided this year, there were also other significant litigation decisions. At 30 June 2011, there were 84 current cases we had identified as significant litigation matters.

    Some of our cases finalised during the year are outlined in Appendix 5.

      Last modified: 31 Oct 2011QC 28036