The ATO tax litigation process

The ATO tax litigation process

The ATO tax litigation process

After you’ve been through the hell of an audit and the ups and downs of an objection the last remaining ground of appeal is to the Courts.

The ATO tax litigation process-there are two options – the Administrative Appeals Tribunal and the Federal Court.

The Administrative Appeals Tribunal is a non-cost jurisdiction, which means that expect in rare cases you don’t get your legal bills paid by the losing side if you win.  You also probably won’t have to pay the winning side if you lose so its great if you think you aren’t sure if you will win.

The members of the Tribunal (the judge) is appointed for a 5-year term.  I’ve heard that this means they are sometimes very pro-government because they want to be re-appointed at the end.  If they keep finding in favour of the taxpayer it might be a quick ticket to retirement, or needing to find a different job.

The advantage, on paper, of the Tribunal is that they have broad powers to remake the same decisions that the ATO can.  This sounds confusing I know, but believe it or not the Courts can only rule on the law, they can’t really make decisions involving discretion.  So lets say that the law allows the ATO to remove penalties if it wants to.  A Court can’t decide if it wants to remove the penalties.  It can only ask the ATO to re-make the decision in accordance with law, if there is some angle.  However, the Tribunal can actually just re-make the decision and exercise the discretion however it wants to, just like the ATO could.

The Federal Court is better if you have a good case and you are likely to win.  This is because if you win the ATO will have to pay your legal bills, in addition to their own.  The ATO tends to not worry about expenditure because they collect pretty much 30% or so of everyone’s pay cheque in taxes, so money is not an issue for them, but it can be an issue for the taxpayer who wants to be reimbursed for having spent so much money.

In the Federal Court, they say that the judges are not as beholden to government which means they can make decisions based on what they think is correct.

The costs question is a serious point to consider.  I have a case right now where at the very beginning at the case management hearing (which is where you discuss when everything is due before a trial can start, e.g. what evidence you will prepare, what submissions you want to make, etc and when all of this is due) the judge has already told the ATO that their position doesn’t make sense and they should consider mediation or resolving the issue.  The tax in dispute is about $60k.  The ATO will be paying $200-300k in legal fees at least because they are engaging an external lawyer and barrister.  If they lose they will be in for another $300-300k or so.  However, because the ATO isn’t sensitive to cost and pricing this does not bother them.  They are also not sensitive about losing, because they are richer than the average person they fight against in Court, its not their money, they know they can bleed their opponent dry and so do make decisions on that basis – this case is a case in point.

What all this means is when you’re fighting against the ATO the odds are already stacked against you, so you need to be careful and have a carefully thought out strategy.

In case you are here because you are wondering what all the steps are in the Federal Court, this is what they are:

  1. You put in a notice of appeal against the objection and basically set out in summary what parts of the ATO’s objection decision was wrong and needs to be changed
  1. The ATO will file an appeal statement in which they will tell you and the Court what their position is.
  1. You file an appeal statement telling them and the Court what the position is.
  1. You file your evidence, or proof, that substantiates your case. You might need to issue some subpoenas if the person you are trying to get evidence from is going to be difficult about it.
  1. They file any objections to their evidence. Think “objection, your Honour” except for a written document.
  1. They file their evidence. Maybe they send out some subpoenas too first.
  1. You object to it if you want to,
  1. You file any evidence in reply (i.e. if you have more evidence which you want to put to debunk what they have put)
  1. You do your submissions saying why you are right
  1. The ATO does their submissions saying they are right
  1. It goes to trial and the judge decides

That’s basically it.

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.

The ATO tax litigation process