Circumstances where it would generally be inappropriate to settle

  1. Circumstances where it would be generally inappropriate to settle include where:
    • the outcome of the settlement would be contrary to an articulated policy reflected in the law;
    • the matter is subject to escalation to settle the Tax Office view;
    • the matter is clear-cut or there is a clearly established and articulated Tax Office view on the issue, and there are no special circumstances such as those described in paragraph 26;
    • the settlement would involve inconsistency of treatment for taxpayers in comparable circumstances;
    • it is in the public interest to have judicial clarification of the issue and the case is suitable for this purpose — in such cases, it may be appropriate to fund the litigation under the test case funding program;
    • litigation of the matter through the courts could have a significant flow-on compliance effect and the case is suitable for this purpose;
    • a similar matter is being litigated and awaiting outcome;
    • the taxpayer's case is poor and unlikely to be pursued through the Administrative Appeal Tribunal (AAT) or Court. Care is necessary to ensure the settlement practice does not encourage frivolous objections and appeals; and
    • inability to pay a tax debt as it falls due has been deliberately created and it would be inappropriate to consider settlement without first escalating the matter (see paragraph 35).

Circumstances where it may be appropriate to settle

  1. As a general guide, settlement may be an appropriate way to resolve a matter if:
    • the cost of litigating (including internal Tax Office costs) is out of proportion to the possible benefits, having regard to the prospects of success (including collection of the tax), and likely award of costs, assessed as objectively as possible;
    • there are complex factual or quantum issues in contention, or evidentiary difficulties, or there is genuine uncertainty as to the proper application of the law to the facts, sufficient to make the case problematic in outcome or unsuitable for resolution through the AAT or courts, (for example, where the issue is peculiar to the particular taxpayer, and the opposing positions are each considered reasonably arguable). This is particularly so where the settlement includes an agreed approach for future income years;
    • a participant or group of participants in a tax avoidance or other arrangement has come to accept the Commissioner's position and settlement is around the steps necessary to unwind existing structures and arrangements;
    • the settlement will achieve compliance by the taxpayer, group of taxpayers, or section of the public, for current and future years, in a cost-effective way; and
    • unique or special features exist which make it unsuitable for resolution through litigation, for example, a dispute about the valuation of a unique asset.
  2. As a general rule, the Tax Office will not enter into a settlement where the outcome would be contrary to its established view of the law (for example, in a public ruling). However, this should not be taken to mean that the Tax Office is not prepared to reconsider the correctness of its view. Should cases come to light where the application of a ruling or an otherwise accepted Tax Office view would produce a result which could be regarded as unintended, unreasonable or incorrect, steps should be taken to have the matter reviewed, or to approach Treasury to recommend to government that there be legislative change.