01 Apr 2021 This week in tax
In this week’s TaxVine, Chris Kinsella, CTA, Co-Chair of The Tax Institute’s National Dispute Resolution Committee provides an update on the ATO’s independent review service, which is being made permanently available to small businesses.
ATO independent review permanently available for small businesses
The ATO introduced their independent review service in 2013.
Initially there was some scepticism as to whether it would be effective or truly independent. Over time, it has become increasingly popular and taxpayers have become more comfortable with the idea of a different and fresh set of eyes from within the ATO reviewing a looming or potential tax dispute. After all, if the matter can be settled or resolved without going to court, then, on most occasions, this is preferable for both the taxpayer and the ATO. A fresh set of eyes will review both the facts and the technical arguments.
Until now, the independent review service was predominantly available only to large taxpayers (turnover above $250 million). Results showed that a significant number of matters were resolved without the need to go to court. So, in principle, why not extend it to small businesses too?
Pilot projects were run by the ATO starting in 2018 in Victoria and South Australia to ascertain the demand for, and feasibility of, extending independent review to small businesses as well. According to the ATO, 180 small businesses participated.
On 26 March 2021, the ATO issued a statement announcing that, following the pilot program, the ATO would offer a small business independent review service on a permanent basis. This is a welcome development, especially after the challenges of the last 12 months.
The independent review service is available for eligible small businesses with an annual turnover of less than $10 million in relation to disputes about income tax, GST, excise, luxury car tax, wine equalisation tax, and fuel tax credits. Disputes about employer obligations such as superannuation and fringe benefits tax are not eligible for the independent review service.
As the announcement noted, eligible small businesses now have an additional opportunity to resolve a dispute with the ATO in a cost-effective and time-efficient manner. This is commendable.
Matters can now be resolved at audit stage, at independent review (before assessment notices are issued), at objection stage or by going to court.
The protocols for engaging in an independent review are well set out on the ATO website. Key points to note include the following:
- When the ATO audit case officer sends a final audit letter to a small business taxpayer, it will include a written offer of independent review and a fact sheet explaining the process (assuming the taxpayer is eligible for an independent review).
- Within 14 days of the date of the final audit letter, taxpayers need to decide whether to engage in the independent review process and email the ATO at this address: Independent_Review@ato.gov.au. The taxpayer’s email must clearly specify and outline each area of disagreement with the audit position.
- An independent review is not available once an assessment has been issued.
- There should be a case conference (an informal meeting) with the ATO within three weeks of the taxpayer’s request. This allows the independent reviewer to discuss the matter with the taxpayer and with the ATO audit team.
- New facts are frowned upon — they are unlikely to be considered by the independent reviewer but rather referred back to the audit team.
- Following that conference, the reviewer will make recommendations to the audit team.
Some further comments
It will be interesting to see the take-up by small businesses of this option going forward. Small businesses often don’t have the funds or time to commit to contesting tax matters in court, so this change may prove popular. Plus, a key design feature is that the process is fast and that should appeal to small businesses.
While this change is a welcome one, it does give rise to the rather odd result that an independent review is available only to taxpayers with turnovers greater than $250 million or less than $10 million. What of the many taxpayers in the middle with turnovers between $10 million and $250 million? The logic of excluding this group is not clear.
Also, what happens to the objections process? As things stand, a taxpayer can still object where the ATO position has prevailed following an independent review. In those circumstances, the objections officer within Review and Dispute Resolution (RDR) will effectively be a third fresh set of eyes to review the matter but will they be inclined to disagree with the earlier decision makers? Will the objections process still have merit?
For more information, the ATO has published the following articles:
- ATO affirms importance of independent review service for small businesses to help resolve disputes;
- Independent review for small businesses with turnover less than $10 million.
As always, we welcome your views and thoughts, which you can provide here.
Chris Kinsella, CTA