ATO plain English guide to alternative dispute resolution

Example of mediation:

The ATO issues a position paper to a taxpayer company forecasting amended assessments are to be issued, raising additional activity statement liability and administrative penalty. The additional activity statement liability is based on a reconciliation of stock purchases and sales documents supplied to the ATO auditor by the company.

Upon receipt of the position paper, the company’s tax agent writes to the ATO and advises that the company disagrees with the position paper and requests the parties meet to discuss the methodology for the reconciliation. Because the relationship between the representatives of the company and the ATO auditor has broken down, mediation is suggested. An ex-judge is engaged to act as mediator in the dispute.

At mediation, the mediator guides the parties in their discussions and ensures both parties have their say. The ATO auditor explains the methodology adopted for the stock reconciliation. The company agrees with the methodology adopted, but raises issues in relation to discrepancies in the reconciliation. Following discussion and review of the reconciliation, the parties agree that the company has not provided the ATO with all relevant documentation. The company then provides further documentation.

Following mediation the ATO auditor revises the reconciliation resulting in a reduction of the additional activity statement liability. The administrative penalty is also reduced. Amended assessments are issued reflecting the reduced liability.

The company does not lodge an objection to the amended assessments and pays the liability by the due date.

Example of facilitation:

A company undertaking research and development (R&D) activities makes a significant claim for the R&D incentive tax offset. Given the refund involved is a significant amount of money, it has been held by the ATO pending investigation. The taxpayer is adamant that it is entitled to the refund and is frustrated because the refund delay is impacting the cash flow of the business. Because of time pressures, the auditor’s manager suggests having a facilitation between the ATO, the director of the company, and its tax agent.

A trained ATO officer who has had no previous involvement in the dispute is allocated to facilitate the dispute. During the four-hour facilitation the ATO explains its particular concerns and its view of the relevant R&D law, and the company provides additional information to the ATO. It becomes apparent the company is entitled to only half of the refund.

The facilitation results in the ATO officers providing an undertaking to immediately process the refund that the company is entitled to; the company and the tax agent having a better understanding of the law and its R&D compliance obligations; and the tax officers complete their investigation in a shorter period of time.

Example of neutral evaluation:

An objection is lodged by a representative for a taxpayer. In the course of considering the objection, and based on significant discussions with the ATO, the tax representative requests the parties have a neutral evaluation before the objection decision is issued.

The taxpayer and his tax representative, together with the objections officer and his director, participate in the neutral evaluation. The ADR practitioner gives advice to the parties about the likely outcome if the matter were to proceed to the Administrative Appeals Tribunal (AAT) or the Federal Court. On the basis of the advice, the parties decide that neither is going to be completely successful in legal proceedings – they also recognise the cost and time involved if the dispute continues. As a result, the parties negotiate an agreement based on the advice received.

Example of conciliation:

A taxpayer lodges an appeal in the AAT against an objection that was disallowed by the ATO over a deduction he claimed in his income tax return. Early in the proceedings, the taxpayer and the ATO agree to a conciliation to try to resolve the dispute.

During the conciliation the ATO officer explains his views on the issue that he needs additional information to assist him to make a decision and this information has not been received, despite repeated requests. The taxpayer said she did not understand why that information could possibly be relevant and would not know where to find the information. The conciliator advises the taxpayer that the information is very important and if it can be provided in some form the dispute may resolve. The taxpayer then explains she may be able to get the information verified by a third party.

Ultimately, the taxpayer provides the information and the dispute is resolved, saving both parties valuable time and money.