Procedural fairness and natural justice: what the ATO does not want you to know

Procedural fairness and natural justice: what the ATO does not want you to know

For most people, unfortunately, an audit by the ATO can turn into a life or death battle for your business. This can be due to any number of factors but usually will be due to time constraints on the part of the auditor and a desire to get rid of the audit quickly and move on.

The problem is that when the auditor is done you are actually left with a real debt, even if it is wrong. The ATO could, if it wanted to, force you to pay it and there wouldn’t be a lot you could do about it except ask the Court to pause recovery action which may or may not happen. It’s a lot of stress.
The other issue is this debt needs to be disclosed. Imagine you need finance and they ask you how much debt you have. You have to disclose the ATO debt, even if it is wrong. If the debt is too big, good luck getting finance to expand your business. You might even technically become insolvent because your business has more debts than it can afford to pay. Insolvency can equal personal liability for all debts, which is not ideal.
In some cases you might already have finance and this new debt would breach your lending covenants, meaning you may be forced to liquidate, repay loans, or accept a worse interest rate.

From the ATO perspective it is no big deal because they will just say you can object. But while you are doing this you have this massive debt to your name, not to mention the stress and uncertainty.
There is, however, an option available to you that the ATO does not want you to know about – it is called procedural fairness and natural justice. These are remedies available under administrative law which generally says that a government decision maker needs to afford basic procedural fairness to a person. You can’t just be arbitrary in decision making.
This right is protected by the Australian constitution.
If you have an out of control auditor, have a think about whether you are being afforded basic procedural fairness. Here are some examples:

1. Irrationality – is the consequence of a decision an irrational outcome
2. Discrimination – where there is inconsistent treatment for the same factual circumstances for different people
3. Disproportionality – where there is a lack of proportionality between the means used to achieve a particular end and the value of that end.
4. Failure to make reasonable enquiries – where a decision maker does not make reasonable enquiries
5. The creation of a legitimate expectation that was not followed

In all of these cases, there may be grounds for review. You could request a statement of reasons under section 13 of the Administrative Decisions (Judicial Review) Act 1977 (in many but not all cases) or alternatively there may be a jurisdictional error argument.

We offer a free 15 minute consultation to anyone who wants to talk about this issue.  After dealing with the ATO for so many years, and after earning a track record of success, we would be happy to share our experience.

Adam Ahmed is an Australian international tax lawyer. Adam has over a decade of experience working at 3 of the big 4 accounting firms and one of the top tax law firms in Australia. He is currently the managing director of Adam Ahmed & Co. 

Procedural fairness and natural justice: what the ATO does not want you to know