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A surprising number of counter-intuitive findings emerge from an inquiry into ATO objections.
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Tax objections report uncovers strange results, says IGTO
12 October 2022
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Strange, counter-intuitive findings have been uncovered by the first inquiry into the ATO’s handling of objections, the Inspector-General of Taxation (IGTO) says.
Taxpayers disputing their own assessments rather than ATO audits are responsible for more than half the objections, said IGTO Karen Payne on the latest Accountants Daily podcast, and it was unclear why.
The interim report, released this week, shows 27,780 objections were lodged in the 2021 financial year and among other surprising findings were that around half were allowed — suggesting the ATO got something wrong — while at least a quarter were either invalid or withdrawn.
Ms Payne said she expected a higher level of objections against ATO audits, which took in some of the COVID-19 measures such as JobKeeper, but taxpayers exercising their statutory right against themselves were in the majority.
“One of the things that really did surprise me was more than half of the objections that are being lodged are self-initiated,” she said. “So less than half of the objections are lodged because there's been ATO compliance action.”
She said while taxpayers had 60 days to dispute a tax assessment they had two years to request an amendment of their income tax return so it was unclear why the self-initiated rate of objections was so high.
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“Now it could be people opened a cupboard and found a whole bunch of receipts and thought, ‘Oh, I didn't claim those, I should.’ And so they’ve gone to amend their return, knowing that they're out of time.
“Another reason could be a taxpayer changes their adviser and the adviser sees their affairs and looks back at prior years and says, ‘Well, actually, you should have done this in the prior year and so we will request an amendment or we will lodge an objection, because you should have got that outcome.’”
Phase two of the inquiry would attempt to answer this question and several others that emerged from the first phase.
It was important to scrutinise the system, she said, because the right to object was enshrined in statute under the Taxpayers Charter and it required the ATO was required to devote resources to consider any objections.
The burden of proof was on the taxpayer to prove a decision was wrong and what the correct decision should have been.
“You must state in your objection, fully and in detail, the grounds that you rely upon for lodging your objection. And that’s important, because if you still get an outcome that you’re not satisfied with and you want to go to appeal to a tribunal or to the federal court, then you are locked into those grounds unless the court or the tribunal says no, we will allow you to raise other issues.
“So getting all of your grounds of objection correct upfront is pretty critical, because it can restrict your ability to raise arguments later on in the process.”
The number of allowed objections — 45–50 per cent across the three financial years to 2021 for which there was data — was another anomaly that required further examination.
Ms Payne said there were a couple of possible explanations for the level of objections allowed.
“It could mean, one, that the objection process is indeed a genuine, independent reconsideration of your facts and circumstances and so in about half of those decisions the tax office has allowed your objection.
“The other thing it could mean is that, in 45–50 per cent of the decisions that the Tax Office made as part of an audit, that they didn’t get it right — that they put you to the compliance task of having to go through an objection process, which, frankly, can be expensive. It’s a lot of red tape and it’s quite a technical legal process.
“In any case, it’s interesting, and probably...worthy of a further look.”
A further odd finding was the amount of redundant “noise” in the system, she said, thanks to withdrawn or invalid objections.
“So either the taxpayer changed their mind and said, ‘No, I don’t want to go ahead with that.’ Or the Tax Office said, ‘No, you can’t lodge this objection – it’s invalid.’
“Now that could be, for example, a timing question where the commissioner says, I won’t exercise my discretion to allow you to lodge out of time.
“It could mean taxpayers are objecting about things that they actually don’t have a right to object to.
“Either way, it’s a lot of noise in the system — somewhere between 30-40 per cent and not lower than 25 per cent. So a quarter of all objections is unnecessary noise in the system.”
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