3.1 The IGT commenced his Review into the Underlying Causes and the Management of Objections to Tax Office Decisions (Objections Review) as a result of stakeholder concerns with the ATO's management of the statutory tax dispute resolution process which provides internal review of ATO decisions, namely the objections process. This review followed a previous IGT review,28 which found that the ATO conceded or settled a significant proportion of disputed assessments in the taxpayer's favour after the objection process but before cases were heard in the Administrative Appeals Tribunal (AAT) or the Courts. Terms of reference for this review were announced on 18 January 2007.

3.2 The causes of objections were examined to determine whether disputes could be prevented or whether the costs associated with dispute resolution processes could be reduced. Furthermore, the review examined both the extent of and the reasons for the ATO conceding cases after it had finalised its objection decisions.

3.3 It was observed that the numbers of objections were not a good indicator of the level of disputation with ATO decisions as a significant proportion were initiated by taxpayers to address administrative matters (40 per cent) rather than involving an ATO-initiated action or decision, for example, the taxpayer seeking the exercise of the Commissioner's discretion to accept a request to amend their assessment outside of the statutory time limits. Using the objection process to address such matters was considered inefficient as it increased taxpayer and ATO costs as well as imposing constraints on the development of more efficient and effective dispute resolution processes.

3.4 Furthermore, of the non-scheme cases that were subject to AAT or Federal Court appeal but did not proceed to a hearing, a large majority (75 per cent) of these were either settled or the ATO conceded the case. These statistics suggested that the objection process was not working effectively to filter out many unsustainable decisions.

3.5 As a result, the IGT made a recommendation for the then Government to consider confining objections to cases of genuine dispute between the ATO and taxpayers. Eleven recommendations were also directed to the ATO with the aim of promoting more efficient, effective and timely objections processes and ATO work practices. The recommendations included promoting greater personal contact between the ATO and taxpayers as a way of resolving disputes, revising ATO performance standards for objections and remitting the general interest charge for ATO delays in finalising objections. The ATO agreed in whole with 8 of these recommendations, agreeing in part or in principle with two and disagreeing with one. The latter disagreed recommendation is reproduced in Appendix 1.

3.6 The then Minister publicly released the report of this review on 11 August 2009.

Implementation of agreed recommendations

3.7 The following section sets out the recommendations made by the IGT and examines the ATO's implementation of those recommendations to the extent that they were agreed.

Recommendation 1

3.8 This recommendation was made for the previous Government to consider and is reproduced in Appendix 2.

Recommendation 2

The Tax Office should finalise and issue a comprehensive public statement that sets out its philosophy on, and value-add approach to, objections including the outcomes it is seeking to achieve through its management and handling of objections. It should ensure that this public statement contains a clear commitment to the following critical elements:

  • a differentiated and risk-based approach to objections handling and management;
  • an emphasis on resolving disputes as early as possible and narrowing issues for potential external review; and
  • the Tax Office's business intent of optimising voluntary compliance and the role of an independent internal review.

ATO position — implemented

3.9 The ATO agreed with this recommendation and noted that work was underway at the time the recommendation was made.

3.10 In October 2012, the ATO published a Dispute Management Plan 2012-13,29 which covers tax and superannuation disputes, including objections. It provides high-level principles about dispute resolution, which includes working with taxpayers to:

  • resolve disputes in the simplest and most cost-effective manner taking into account the merits and the risks;
  • resolve disputes as early as possible [using] early engagement and direct negotiation [to avoid, minimise and resolve disputes early]; and
  • clarify issues by listening to each others' views and considering all resolution options.

3.11 Furthermore, several ATO Online Resource Centre for Law Administration (ORCLA) documents now note the impact of ATO-taxpayer interactions on the taxpayer's attitude, behaviour and level of voluntary compliance. For example 'Tax officers must ensure their communications and actions enhance the willingness of a taxpayer to voluntarily comply with their current and future tax obligations regardless of the outcome of the dispute.'30

3.12 The ATO's Dispute Management plan also notes the role of objections in independent internal reviews. This is further supported by the public ATO webpage 'Correct a mistake or dispute a decision — Dispute (object to) an ATO decision'.31

IGT conclusion — implemented

3.13 The IGT considers that the ATO has implemented this recommendation.

Recommendation 3

The Tax Office should continue to develop work practices and procedures that recognise and respect the role of objections within an end-to-end dispute environment and promote a culture consistent with the function of internal review. The Tax Office should ensure that its work practices and procedures incorporate the following measures to implement these arrangements.

  • The respective roles of the original decision maker and objection officer are set out to ensure that they are understood and adhered to.
  • Objection officers promptly consider whether the Tax Office view is correct and supportable on the available facts and evidence.
  • Objection officers consider whether alternative approaches to dispute resolution, such as settlement or mediation, may be appropriate, how the dispute could be resolved without recourse to litigation, when escalation should occur and when case-conferencing could be appropriate. This should also involve providing expertise to assist objection officers in determining what approaches to use with specific cases.
  • A fast-tracked process to external review be made available that would allow an objection decision to be expedited where resolution of the dispute at the objection stage is unlikely as it deals with the Tax Office view of the law (as expressed in a ruling, determination or other interpretative advice) and the facts are agreed.
  • Where an objection officer has sought input from the original decision maker on material facts, evidence or technical view, and the objection officer is likely to disallow the objection, the taxpayer is given an opportunity to respond on these material facts, evidence or technical view.
  • Objection officers have the skills and authority to decide the objection, or the ability to access appropriate skills and escalate the case to a person of sufficient authority where required. Where the Tax Office's technical view is challenged, this should result in its reconsideration by a person of sufficient technical authority.
  • Appropriate training is developed for objection officers in line with its philosophy and approach on objections in the context of its end-to-end dispute resolution system.

ATO position — implemented

3.14 The ATO agreed with this recommendation and noted that work was underway at the time the recommendation was made.

3.15 The ATO's work policy, practice and procedures for objection officers is governed by PSLA 2003/932 and mandates that all ATO officers involved in technical decision making must follow the policies set out in the ORCLA.

3.16 Following the IGT's review, the ATO revised ORCLA and the related policies.

Respective roles of decision makers

3.17 The ATO's internal ORCLA page, which is titled 'Independence', states that the objection officer is the ultimate decision maker acting as an agent of the delegate (being a Deputy Commissioner of the relevant business line). The original decision maker may be consulted by the objection officer to assist in providing the taxpayer with a seamless integrated experience. However, officers are expected to exercise judgment as to the degree of consultation to ensure they properly re-examine the issue without influence or bias. The public ATO webpage 'Correct a mistake or dispute a decision — How we process your objection' states than for objections '[w]e review the facts and evidence you provide and come to a decision'.

ATO officers to promptly consider correctness of ATO view and supportable on facts and evidence

3.18 The ATO's internal ORCLA page 'Identify issues and material facts' requires objection officers to identify the issues and material facts, and at the earliest opportunity, consider if the original decision is correct and supportable on the available facts and evidence. Furthermore, the public ATO webpage 'Correct a mistake or dispute a decision — How we process your objection' states that:

Within 14 days of receiving your objection, we:

  • review your objection and, if necessary, contact you or your representative to discuss it
  • request further information, if required, to allow us to make a decision
  • advise you if your objection will take longer than usual to decide (particularly where the objection raises complex matters) and negotiate a new due date with you for us to make the objection decision.33

Alternative approaches to dispute resolution and case conferencing

3.19 A number of the ATO's ORCLA pages support ATO officers to consider alternative forms of dispute resolution other than through the objection system. For example, the 'Case Conferencing' ORCLA page indicates that such a conference is an opportunity to resolve a dispute as close as possible to the original decision. A case conference is therefore suitable in both the audit and objection context. The 'Working together' ORCLA page highlights the occasions when it would be appropriate to engage early with specialists, which may include technical and case leaders within the business line, or technical experts within the Review and Dispute Resolution (RDR) business line. Furthermore, one of the aims of the ATO's Dispute Management Plan is:

To increase the number of people using dispute resolution processes such as negotiation, case conferencing, mediation and conciliation.34

Fast-tracking to external review

3.20 The ATO's ORCLA page 'Value in proceeding to litigation' mandates the use of a 'Risk of litigation indicator' for all objections processed through its enterprise case management system, Siebel. For objections that are expected to be disallowed or allowed in part, the 'Litigation risk matrix' must also be used. Using the matrix facilitates the engagement of Legal Services Branch ('LSB', an internal ATO department)35 which can provide more complete advice on the likelihood of litigation.

3.21 The abovementioned ORCLA page also highlights the types of dispute that are usually suitable for 'early resolution' (rather than litigation), such as those where the:

  • issue in dispute only involves the application of penalties;
  • amount of tax in dispute is relatively low;
  • ATO position is uncertain because of insufficient facts or evidence;
  • dispute carries a reputation risk;
  • ATO view is new or uncertain and the case is unlikely to clarify the law; or
  • facts of the case are unusual or complex so that they create uncertainty in the application of the ATO view.

3.22 The above types of disputes may likely be resolved without court or tribunal intervention, and officers could seek to minimise taxpayer costs by such resolution.

3.23 Nevertheless, the above ORCLA page recognises the right of taxpayers to seek external review in the courts or tribunal. Furthermore, it lists circumstances where litigation may be appropriate, such as where:

  • there is uncertainty or contention about how the law operates;
  • the issue is of significance to a substantial section of the public or has substantial commercial implications for an industry; or
  • it is in the public interest for the issue to be litigated.

3.24 Where any of these circumstances are present, the ATO may also consider whether it is appropriate to provide test case funding.

3.25 Despite this guidance, however, there does not appear to be any indication of a fast-track mechanism to allow taxpayers to promptly proceed to external review where the resolution of the dispute at the objection stage is unlikely due to a fundamental disagreement with the ATO's view of the law, notwithstanding the facts of the case may be agreed.

Where objection officers seek input from original decision maker

3.26 The ATO's internal ORCLA page 'Engaging with the taxpayer' provides for the following process to ensure taxpayers are given an opportunity to respond to further input sought from the original decision maker:

Objections to be disallowed in full or part

The tax officer must contact the taxpayer when an objection is expected to be disallowed in full or, in part due to acquiring information that the taxpayer is unaware of, which:

  • concerns material facts, evidence or a technical view, or
  • provides a very persuasive explanation for the basis of the audit decision.

Additional information can be obtained from any source such as the audit decision maker, or subject or industry experts from either within or outside the ATO.

The tax officer must explain to the taxpayer how the additional information influences the ATO position and what information if any, would alter the ATO position. Giving the taxpayer an opportunity to respond to the additional information is treated as a request for further information.

Objection officers to have skills and authority to decide the objection or sufficient access to those who do

3.27 As mentioned earlier in this chapter, the ATO's 'Independence' ORCLA page states that objection officers are the ultimate decision makers, acting as agents of the relevant delegate. The 'Working together' ORCLA page highlights the occasions when it would be appropriate to engage early with specialists, which may include technical and case leaders within the business line, or technical experts within the Review and Dispute Resolution (RDR) business line. However, the page does not identify the situation where the 'Tax Office's technical view is challenged' as a particular reason to engage specialists.

3.28 It is also important to note that the ATO has recently moved to a risk-based approach to determine the engagement of Review and Dispute specialists. In the case of large complex matters, the ATO has instituted an independent review36 process following from the IGT's Tax Forum submission and review reports as mentioned in Chapter 1. The ATO had advised that approximately half of the initial cases examined in this process have resulted in the ATO agreeing to the taxpayer's position. The ATO dispute process will be examined in more detail in the House of Representatives Standing Committee on Tax and Revenue's recently announced Inquiry into Tax Disputes.37

Appropriate training for objection officers

3.29 The ATO has indicated that all relevant training packages have been reviewed and rewritten to align with the changes made to its ORCLA content.

IGT conclusion — implemented

3.30 The IGT considers that the ATO work set out above addresses all parts of the recommendation with the exception of a fast-track mechanism to allow taxpayers to promptly proceed to external review. However, this mechanism has been considered further in a subsequent IGT review and recommendation made that the ATO engage with relevant stakeholders and provide greater clarity on the use of declaratory proceedings to provide such a mechanism.38

3.31 As the implementation of this subsequent agreed recommendation is subject to review by the new assurance process discussed in Chapter 1, the IGT considers that the ATO has implemented aspects of this agreed recommendation for the purposes of this follow up review.

Recommendation 4

Over the next two years, the Tax Office should work towards revising its performance standard for the finalisation of objections from the current 70 per cent in 56 days to 85 per cent in 28 days in line with other relevant Taxpayers' Charter and Tax Office standards.

ATO position — not implemented

3.32 The ATO agreed in part with this recommendation, stating that although it was committed to improving its existing service standards, it was not in a position to implement the service standards specified in the recommendation. However, the ATO planned to have made appreciable progress over the following two years, depending upon a number of factors, including a law change which would remove from the objections process those objections which are essentially no more than taxpayer requests to change their self assessed tax return.

3.33 The ATO has since advised that it has not been in a position to implement this recommendation as originally envisaged, as the anticipated law change mentioned above has not been made. However, work had been undertaken to improve the way objections are handled, including:

  • developing and deploying streamlined case activity plans to support differentiated handling of different levels of risk and complexity and a related education program on the proper use of its case management system, Siebel, in this respect;
  • improving access to standard letters to lower handling time and provide more consistent communication;
  • reviewing work practices and eliminating unnecessary activities;
  • reviewing the policy governing the actioning of objections to ensure mandated activities achieved a high level of service and made good use of resources;
  • conducting workflow analysis for objections to identify bottlenecks which could then be addressed;
  • making improvements to the classification and routing of objections;
  • undertaking benchmarking to support the identification of best practice and the assessment of improvement activities;
  • providing case officers and team leaders with training on active case management; and
  • improving the procedures used by case officers and the material which supports team leaders and approving officers in the management of workloads.

IGT conclusion — not implemented

3.34 The IGT agrees with the ATO that it has not implemented this recommendation in the manner originally conceived. However, the IGT recognises that the ATO has taken certain actions to make improvements.

3.35 The aim of this recommendation was to address ATO delays and inadequate communication during the objection process and to make the performance standards for completing objection decisions consistent with other ATO work, such as private rulings.

3.36 The original review identified that dealing with self amendments to tax returns in the objection process was one of the reasons for ATO delays. Recommendation 1 of that review sought to remove such disputes from that process39 by asking Government to consider whether the law should be changed. However, such change has not eventuated.40

3.37 The ATO also approached the IGT when it considered that it could not strictly implement the recommendation as agreed and proposed alternative measures to decrease the timeframes. As a result, the ATO's performance against the service standard has improved since the original IGT review as the number of objections completed in 2011-12 has more than doubled since 2007-08:

Table 3: Completion timeframes for objections
Year Numbers completed Percentage completed within 56 days
2007-08 14,106 (16,788)* Not specified
2008-09 15,124 (18,638)* 46%
2009-10 19,349 (21,605)* 59%
2010-11 24,255 79%
2011-12 33,272 77%
2012-13 Not specified 84%

Source: *The Commissioner of Taxation's 2011-12 Annual Report indicates different objection totals for those years as indicated in brackets.

3.38 Notwithstanding these positive ATO improvements including a recent review of service standards, the relevant ATO performance measure for 2013-14 remains unchanged at '70 per cent of objections are finalised in 56 calendar days of receiving all necessary information'.41

3.39 The IGT may reconsider this issue if it is raised by stakeholders in future.

Recommendation 6

In the early stages of the objection process:

  • the Tax Office should continue to encourage objection officers to contact taxpayers with the view of exploring opportunities for early resolution of the dispute; and
  • where it could be of some benefit in resolving a dispute, the Tax Office should continue to adopt the practice of case conferencing, in which the objection officer, the taxpayer and Tax Office technical experts discuss the issues in dispute.

ATO position — implemented

3.40 The ATO agreed with the recommendation and that it was continuing implementation work.

3.41 As mentioned earlier, the ATO revised its ORCLA content and related policies after the IGT's review. The ATO now has the following relevant policy and tools in place to assist its staff:

  • ORCLA guidance pages have been produced to encourage ATO officers to explore early and alternative dispute resolution processes. This includes the use of case conferencing, with a page outlining the benefits of case conferencing and how it should be conducted. Furthermore, there is a 14 day timeframe for ATO officers to contact the taxpayer to request more information which should ensure that a discussion on case conferencing can occur early in the process.
  • A risk-based tool (the litigation risk matrix) has been developed for objections officers to assist them identify cases where ongoing disputation is likely and closer attention may be required. Detailed work processes in the Siebel case management system and the ORCLA also require tax officers handling such cases to engage earlier with those internal experts42 who could assist in considering alternative approaches which narrow or resolve issues in dispute.

3.42 The ATO's Dispute Management Plan, as noted earlier, also supports the use of case conferencing.

3.43 Furthermore, the ATO has advised that its approach to dispute resolution and the policies and practices in support have been communicated through internal and external communication channels.

IGT conclusion — implemented

3.44 The IGT considers that the ATO has implemented this recommendation.

Recommendation 7

The Tax Office should continue with its development of the Integrated Quality Framework and ensure that the quality control system:

  • includes features to properly evaluate the quality of the Tax Office's end-to-end decision making process;
  • is applicable to key objection work practices;
  • includes mechanisms for objection officers to provide and receive feedback as a means to improving the decision making processes;
  • identifies whether critical objection work practices that assist in the resolution of disputes are being followed and applied consistently across the business lines; and
  • includes examination and analysis of further information requests to ensure that relevant information is sought at the earliest opportunity.

ATO position — implemented

3.45 The ATO agreed with this recommendation.

3.46 The ATO has advised that since the IGT's original review it has put in place the essential Integrated Quality Framework (IQF) building blocks, together with the core processes, to evaluate the quality of the ATO's end-to-end decision making process. Furthermore, the key infrastructure is now operational for Interpretative Assistance products, including objections. Whilst these described processes and infrastructure items are now in place, the ATO states that the IQF is still in a 'bedding down' period, with many business areas remaining focussed on the detailed mechanics of the IQF processes. As a result, the ATO is currently examining a new model for quality control which is less dependent on ATO products, applicable to all ATO activities and focusses on more intuitive principles. In this respect, the IQF may not be the sole means to capture insights on potential improvements to end-to-end decision making.

3.47 Therefore, the ATO is currently working on establishing more formal feedback processes between objections officers, dispute resolution officers and audit officers as well as enabling the collection of intelligence to improve both audit and objection processes.

IGT conclusion — implemented

3.48 The IGT considers that the ATO has implemented this recommendation.

3.49 The IQF may currently be the primary means to capture improvement insights, as it was anticipated by the ATO during the original review. However, the ATO is in the process of rolling out a number of quality control points in the form of early resolution and intervention activities.

3.50 The recent insights from these control points have been captured and are driving an ATO emphasis on improving audit officer capability to identify and gather relevant facts and evidence as well as to improve early dispute resolution functions. Further information is set out later in the ATO's position on Recommendation 10.

Recommendation 8

The Tax Office should continue to implement work practices and procedures that address the following:

  • when asking for information during objections, the Tax Office should ensure that information requests are tailored to the dispute on hand by clearly articulating the type of information it is seeking and the purpose and relevance of the information to the issues under examination;
  • self represented taxpayers in particular should be provided with plain language advice on making objection applications and assistance in ensuring that all relevant information and evidence is before the objection officer for reconsideration of the earlier Tax Office decision; and
  • communications between the objection officer and the taxpayer should also be aimed at improving understanding of the reason for the objection to facilitate early resolution of the dispute.

ATO position — implemented

3.51 The ATO agreed with the recommendation and noted that work was continuing with respect to its implementation.

3.52 The ATO advises that its 'Request for Further Information' letter now includes an explanation of why the information is needed and helps to ensure that only the information required is requested.

3.53 The ATO has also restructured and rewritten the publicly available information for taxpayers intending to object to their assessment. The ATO's Disputes Policy43 directs taxpayers to the 'Correct a Mistake or Dispute a Decision' webpage of the ATO website, which provides simple instructions on 'How to object to a decision' and guidance on what information should be included in the objection.

3.54 The ATO has also revised its 'Acknowledgement' and 'Notice of Decision' letters for objection cases with the aim of improving communication, interaction and engagement with taxpayers.

3.55 In addition, the earlier mentioned risk-based tool, litigation risk matrix and supporting work practices, guide officers to engage with taxpayers to resolve disputes or at least narrow the issues in contention. For example, the ORCLA page 'Engaging with the taxpayer' highlights the importance of having discussions with the taxpayer:

Interaction with the taxpayer includes phone and face-to-face discussions and provides an opportunity to:

  • ... request information necessary to reach a decision
  • communicate the ATO view of the relevant facts, evidence, application of the law and penalties
  • give the taxpayer an opportunity to respond to the ATO view, in particular where the view is based on information the taxpayer may not be aware of
  • actively listen to the taxpayer's arguments about facts and issues
  • reach a common understanding or agreement, as early as possible on:
    • many aspects of the audit or objection
    • the facts and issues of the case, especially those that may form the basis of an ongoing dispute
  • explore options for resolving the issues in dispute
  • discuss the future management of the issues that remain in dispute, and
  • reach finality sooner.

IGT conclusion — implemented

3.56 The IGT considers that the ATO has implemented this recommendation.

3.57 However, the IGT notes that taxpayers continue to raise concerns with the IGT relating to the adequacy of explanations for information requests and ATO officers' understanding of taxpayers' positions. Whilst the ATO may issue procedures that are directed at improving such explanations and understanding, the IGT considers that other measures may also be needed to sufficiently address these taxpayer concerns. These issues have been examined in subsequent IGT reviews, such as the Review into the Australian Taxation Office's use of Early and Alternative Dispute Resolution (ADR Review).44

Recommendation 9

Aligned with the Tax Office's philosophy, approach and agreed outcomes on objections, the Tax Office should continue to design, monitor and report against a broad range of indicators and measures that allow it to evaluate the quality, efficiency and effectiveness of the objections function within its end-to-end dispute process. Some of these measures and indicators should be reported externally, where appropriate, with consideration being given to:

  • the level of disputation in the tax system including the source, cause and nature of objections;
  • all its service standards (completion and further information requests) included in the Tax Office's annual report;
  • outcomes; and
  • age profiles.

ATO position — agreed in principle

3.58 The ATO agreed in principle with this recommendation, indicating that it would consider reporting externally any indicators and measures as part of any improvements to its reporting.

3.59 Since the original IGT review, the ATO has developed an 'objections reporting cube' (Objections Cube) which supports the extraction and analysis of data on the source, cause and nature of objections. The Objections Cube has an interrogation and intelligence function in respect of which a set of standard reports have been developed for more routine analysis.

3.60 However, before the Objections Cube becomes a source of actionable intelligence, the ATO notes that more work is needed to resolve a number of issues, including:

  • data which may enhance the intelligence yielded is not currently captured or included as part of the reporting cube; and
  • data integrity issues, for example existing data fields are not always completed correctly by relevant officers.

3.61 The ATO has advised that additional work has been done to identify further information that could be used to better identify how the end-to-end process can be improved. Accordingly, the ATO is now capturing information regarding events that took place during the course of the audit which impact the objection as well as information regarding the major factors influencing the objection outcome.

3.62 The abovementioned standard reports also provide information regarding age profiles, stock on hand and objection outcomes. Ongoing consideration is also given to what is suitable for external publication.

3.63 To provide further information regarding the end-to-end process, the ATO has also published three issues of a publication, Your Case Matters, which provides some data and analysis on ATO litigation over recent years which includes data on objections.45

IGT conclusion — action taken is consistent with agreed principle

3.64 The recommendation aimed to increase transparency of the nature, level and management of disputation in the tax system.

3.65 There is limited public information on the age profile of objections or their outcomes, although such information is reported internally on a routine basis.

3.66 The ATO's development of the Objections Cube (an internal reporting tool) also facilitates a better understanding of trends and areas that may require a particular focus. The Objections Cube has potential to increase management awareness of the underlying causes and levels of objections.

3.67 The IGT considers that once the Objections Cube is refined to provide reliable information on the causes, outcomes and aging, the ATO will be better positioned to externally report more detailed information about objections. Accordingly, the IGT considers that the ATO action outlined above is consistent with the agreed principle.

Recommendation 10

The Tax Office should adopt a more corporate emphasis and better analyse the trends and outcomes of objections and litigation as a source of improvement of its end-to-end dispute resolution process and feedback to both objection officers and primary decision makers. This analysis should include the identification of potential systemic issues in the end-to-end dispute resolution process and the effecting of improvements.

ATO position — implemented

3.68 The ATO agreed with the recommendation and work continues with its implementation.

3.69 As part of the response to the recommendation, the ATO conducted the 'Objections Review project' to determine underlying causes and opportunities to improve upstream (review and audit) work processes. This review project provided findings such as:

  • Better ongoing communications with taxpayers, both verbally and in writing, would have assisted staff to obtain the right information during the audit phase and would have reduced objection rates and allowed-in-full rates.
  • Better audit communications to coherently explain our substantive and penalty decisions may have also minimised objections.
  • In some cases, our reason for decision (both substantive and penalty) as seen on the case file, could have been clearer and more coherent.
  • Increased efforts aimed at improved informal and formal information gathering during audits are required.
  • Constant messaging to taxpayers and tax professionals around providing timely, relevant information during audits to prevent costly disputes, may have had a positive impact on objection numbers.46

3.70 Particular areas for ATO officer training were identified as a means to improve work practices to minimise objections. For example, it has rolled out 'Active Case Management' training to relevant compliance staff.

3.71 In addition to the above work, the ATO has advised that the Interpretative Assistance Capability and Improvement Unit staff have processes in place to analyse information captured for formal reporting. The ATO has also developed a series of standard reports, as mentioned earlier, for use by business lines in respect of their cases. These reports cover financial reporting, such as stock on hand and finalised stock, and reporting on drivers for objections, such those that are audit sourced, client sourced or corporate drivers.

3.72 Since November 2013, the ATO has used an 'early assessment and resolution' process when large corporate taxpayers appeal ATO decisions (as part of the Siebel system and work processes mentioned earlier). This process involves a senior ATO dispute resolution officer working with the business line officers and the taxpayer and/or their representatives to narrow issues in dispute. The ATO advises that formal feedback arising from this process has been provided to original business line decision makers and resulted in the resolution of over 50 per cent of cases prior to formal hearing.

3.73 Following the early assessment and resolution processes, the ATO had also identified an opportunity to improve the evidence identification and gathering capability of compliance officers more broadly. As a result, the ATO is considering embedding several RDR officers with litigation experience within compliance teams dealing with more complex large business audits. It is envisaged that such officers will provide on-the-ground early guidance with respect to the relevance and robustness of evidence sought by compliance staff. The ATO has also advised that, on a six-monthly basis, it intends to review the insights drawn from its early assessment and resolution processes to identify further improvement work.

3.74 Furthermore, following the IGT's ADR Review,47 the ATO had trialled a project in which trained ATO officers may be called upon to assist taxpayers and ATO compliance officers resolve disputes at the objection stage — known as 'in-house facilitation'. As a result of the success of this pilot, the ATO advises that from April 2014 in-house facilitation will be extended to disputes arising during audits and in any area of the ATO.

IGT conclusion — implemented

3.75 The IGT considers that the ATO has implemented this recommendation. The ATO has completed work in implementing and refining processes to capture information, such as the Objections Cube and the improvement work identified by the ATO's Objections review project.

Recommendation 11

The Tax Office should review its current audit work practices and training programs in relation to the role of original decision makers to ensure that they align with the Tax Office's philosophy and approach to end-to-end dispute resolution and that they conform appropriately to the Administrative Review Council Best Practice Guides. In particular, the Tax Office should identify critical audit work practices that can have significant implications for dispute resolution at the objection and litigation stages. It should also encourage open and direct communication between the parties and the timely exchange of information and views.

ATO position — implemented

3.76 The ATO agreed to conduct a review of existing audit work practices and training programs to consider the matters raised in the recommendation.

3.77 Since that time, the ATO has advised that it is continuing towards fully implementing the recommendation as work practices are further refined. Although the ATO did not strictly conduct a formal review of the audit work practices, it did conduct the earlier mentioned Objections Review which identified areas for improvement in some of the critical audit work practices.

3.78 As a result of the IGT's recommendation, the ATO has developed, deployed and is further refining the facts and evidence worksheet as a key tool supporting the gathering, documentation and consideration of facts and evidence throughout the life of the audit. This worksheet has been mandated for cases that are more likely to be complex or contentious to assist the original decision maker to arrive at a decision that is sustainable, timely and well-documented.

3.79 The ATO has advised that for certain business lines, it is currently developing a suite of pre-populated elements for the facts and evidence worksheets to improve productivity. An example of pre-populated facts and evidence worksheet templates are the Indirect Tax (ITX) business line's templates that have been developed as a consequence of Commissioner of Taxation v Multiflex Pty Ltd.48 An Information Technology (IT) solution is also being investigated in an attempt to achieve productivity improvements in relation to the use of the facts and evidence worksheets. The ATO has stated that ongoing work is underway to review the quality and effectiveness of its use of the facts and evidence worksheet, with a focus on improving case decisions and resolving disputes earlier.

3.80 The ATO has developed and conducted training programs and packages across business lines as well as continuing to refine and improve its training materials. For example, the ATO's Learning and Development team is also reviewing the facts and evidence worksheet training packages, with a particular focus on evidence gathering.

3.81 Furthermore, the ATO considers that the Dispute Management Plan should foster a common understanding between taxpayers and ATO officers (whether review, audit or objection officers) by raising awareness of the impact of improved communications at the time of the original decision. For example, the ORCLA page 'Engaging with the taxpayer' encourages ATO officers to make phone or face-to-face contact.

3.82 From 1 July 2012, the ATO started rolling out its dispute risk procedures (after being piloted) as 'business as usual' within the active compliance business lines. These procedures are designed to assist ATO officers in the early identification of a likely dispute and manage that risk through certain procedures such as specific documentation and engagement of experts. The procedures have been incorporated within the active compliance case product procedures. The dispute risk documents have also been published onto the ATO's Work Processes intranet site.

IGT conclusion — implemented

3.83 The IGT considers that the ATO has implemented this recommendation.

Recommendation 12

The Tax Office should continue with its development of the Integrated Quality Framework and ensure that the quality control system:

  • adequately measures and provides for the continuous improvement of the overall quality of original decision making;
  • includes identifying whether critical audit work practices and processes are being followed and applied consistently across business lines;
  • assesses how well original decision makers have identified and considered the issues, the relevant facts, the reliability and weight of evidence supporting the findings of facts and the application of the law; and
  • includes a causal analysis of quality in relation to the end-to-end process, so that comparisons between audit and related objection decisions can be undertaken, including an evaluation of the effect of internal review on original decision makers so as to minimise the potential negative effects of internal review.

ATO position — implemented

3.84 The ATO agreed to this recommendation and has advised that the essential IQF building blocks are now in place, the core processes implemented and key infrastructure operational for active compliance products.

3.85 Findings from these IQF processes are intended to be used to continuously improve the quality of audit decisions as they are designed to evaluate the quality of audit decisions and adherence to key audit work practices in relation to a range of quality assessment criteria. For example, the 'Administrative Soundness' criteria for active compliance work assesses conformance to work practices:

Any potential questions on the administration of the case/decision making process must be defendable. The manner in which decisions have been arrived at must follow all relevant administrative law, policy and directions. To ensure a case is administratively sound, staff are required to consider and follow as directed:

  • practice statements including relevant penalty decision policies and record keeping requirements.
  • sub plan, capability, line and project practices and procedures.

3.86 Business line capability development processes and assessment moderation activities are designed to ensure that assessors are appropriately skilled to undertake field assessment work. Where assessment data indicates that some non-adherence has occurred, it is provided to relevant case participants and made available for analysis at a systemic level.

3.87 The ATO has advised that work is also underway within its business lines to establish more formal feedback between objections officers and audit officers as well as to enable collection of systemic intelligence to improve both audit and objection processes. An example of this is found in the IQF community involvement process, where the ATO has increasingly seen the uptake of opportunities to assess casework from audit through to corresponding objection during the past two years. Another practice favoured by community representatives is to include officers from both active compliance and interpretative assistance (where objections officers are located) on the same quality assessment panel, for the expertise they bring and for the potential learning opportunities this provides.

3.88 According to the ATO, the implementation of IQF processes to date have provided business lines with additional sources of intelligence as well as core quality management infrastructure. The next step will be for business lines to fully utilise this intelligence and infrastructure as part of disciplined analysis and improvement activity.

3.89 The earlier mentioned Objections Cube will also assist the ATO to understand the reasons why original decisions are reversed or modified on objection.

IGT conclusion — implemented

3.90 The IGT considers that the ATO has implemented this recommendation.

28 IGT, 'Litigation Review' above n 12.

29 ATO, Dispute Management Plan 2012-13.

30 ATO, 'Engaging with the Taxpayer', internal ATO document, undated; ATO, 'Integrated Approach to Dispute Resolution,' internal ATO document, undated.

31 ATO, 'Correct a Mistake or Dispute a Decision — Dispute (Object to) an ATO Decision' (May 2013).

32 ATO, The Online Resource Centre for Law Administration, PS LA 2003/9, 28 August 2013.

33 ATO, 'Correct a Mistake or Dispute a Decision — How we Process Your Objection' (January 2014).

34 ATO, 'Dispute Management Plan 2012-13' above n 29.

35 Now incorporated into the ATO's Review and Dispute Resolution business line.

36 ATO, 'Independent Review of Audit Position', above n 3.

37 John Alexander MP, 'Inquiry in Tax Disputes Launched' (Media Alert, 6 June 2014).

38 IGT, 'Alternative Dispute Resolution Review' above n 4, pp 61-63, Recommendation 4.3.

39 IGT, 'Objections Review', above n 2, para [2.69].

40 Nick Sherry (Assistant Treasurer), 'System for Taxpayer Objections to Tax Office Decisions to be Improved' (Press Release, 2009/28, 11 August 2009).

41 ATO, Current Year Commitments to Service (July 2013).

42 Including those from the ATO's Legal Services Branch, Tax Counsel Network and Dispute Resolution Network.

43 ATO, Disputes Policy (undated).

44 IGT, 'Alternative Dispute Resolution Review' above n 4.

45 ATO, Your Case Matters (3rd ed, 2013).

46 ATO, '2011-12 Objections Review — June 12 Update', internal ATO document, September 2012.

47 IGT, 'Alternative Dispute Resolution Review' above n 4, Recommendation 3.6.

48 [2011] FCAFC 142.