3.1 Each year the Tax Office conducts a large number of active compliance activities, many of which result in increased tax liabilities. A proportion of these cases are disputed by taxpayers, which may be resolved by a number of means, including by way of settlement. The relationship between active compliance activities and cases that end in settlement can be represented visually as follows.

Figure: Relationship between active compliance activities and cases that end in settlement

3.2 Disputed tax liabilities are often resolved by agreement between the Tax Office and the taxpayer — generally resulting in the taxpayer's assessment being amended to a lower sum than originally determined by the Tax Office. Further background to the Tax Office settlement processes is found in Appendix 1.

3.3 An accurate comparative analysis on the precise quantum raised in active compliance activities and settlements is currently not possible due to recording limitations that arise because of the different systems on which data is recorded and the different purposes for which the differing data was originally created. This is explained in more detail below.

3.4 The data that is available, however, does provide a valuable indication of the areas that may warrant further analysis. Tables 1 and 2 below provide a compilation of the available data over the last five years.

Table 1: Compilation of available data for case numbers and aggregated liabilities raised in active compliance activities, disputed liabilities and amounts reduced through settlement over the 2003-04 to 2007-08 income years (five-year period)
Activity Number of activities Amounts excluding
notional amounts (c) in $m
Amounts including
notional amounts (c) in $m
All active compliance activities (a) 9,151,000 32,798 45,650
All disputed active compliance activities (e) 86,000 — 101,000 (f) n/a n/a
Settled active compliance activities — amounts disputed (b) 15,637 9,729 15,257 — 21,835 (d)
Settled active compliance activities — amounts settled (b) 15,637 5,199 10,647

(a) Notional amounts are generally the potential tax effect of carried forward losses.

(b) Ranges can only be given because of functional limitations for recording losses in the settlement register.

(c) n/a = not available (includes activities disputed but not settled — for example, litigation and objection)

(d) A range is given because of the potential data overlap between different dispute categories.

Source: Commissioner of Taxation annual reports

Source: Tax Office settlement register

Table 2: Compilation of available data for case numbers and aggregated liabilities raised in active compliance activities, disputed liabilities and amounts reduced through settlement over the 2003-04 to 2007-08 income years (five-year period) by Tax Office business line and active compliance activity
Tax Office business line All active compliance activities (a)


All disputed active compliance activities (c)


Amounts disputed in active compliance activities ultimately ending in settlement (b)


Amounts settled in active compliance activities ending in settlement (b)


Numbers of settlements (b)


LBI 23,029 n/a 11,833 8,378 380
SME/SB 6,445 n/a 1,629 1,132 10,505 (d)
MEI/ATP/Ptax 11,427 n/a 641 597 3,879
GST 7,814 n/a 580 310 326
Other 486 n/a 208 125 547

(a) n/a = not available (includes activities disputed but not settled — for example, litigation and objection).

(b) A significant number of cases in this category relate to settlement of aggressive tax planning cases which at the time of recording were managed within the SME/SB area (and would now be handled by the ATP area).

Source: Commissioner of Taxation annual reports. Amounts include notional amounts. Note: due to annual reporting changes in the 2006-07 and 2007-08 income years an amount of $3,552 million attributable to GST is unable to be extracted from the other categories.

Source: Tax Office settlement register.

3.5 While the above data may be useful for broad indicative analysis, care must be exercised in using it for specific quantum analysis because it is unclear how much of the disputed amounts derived from the settlement register were active compliance amounts reported in the annual reports. The different systems on which these two amounts were recorded do not allow for direct tracing or linkages between the two figures. Additionally, the Tax Office's systems do not currently record whether a dispute (other than a complaint) relates to an active compliance activity or not.

3.6 During this review the Tax Office also identified problems with the accuracy of figures recorded on the settlement register and, since late 2006 it has made changes to improve recording of its settlement data. Accordingly, for the years prior to these changes, it is difficult to determine the level of reductions made to primary tax, penalties and interest as discrete categories. A break-up of settlements by business line and tax, penalty and interest in the 2007-08 year is provided in Table 3.

3.7 Care must also be exercised in drawing specific conclusions from these figures for a given year because of the impact that larger settlement cases can have on proportions in any one year. For example, over two-thirds of the total quantum varied in settlements during the 2007-08 year occurred in just 10 cases, and the large variance for penalties in the GST area was primarily due to three cases. Aggregated amounts over a greater period of time would help to smooth the effect that these larger cases may have.

Table 3: Variance in Tax Office's pre-settlement position for settlement cases finalised in the 2007-08 income year by Tax Office business line and revenue type
Tax Office business line Case numbers Variance in the Tax Office's pre-settlement position to position at settlement (c)
Primary tax Penalties Interest Notional (a) Totals
$m $m $m $m $m
LBI 30 256.8 54.7 35.1 62.0 408.6
SME 65 84.2 24.7 36.9 0.0 145.8
MEI/ATP 558 5.7 11.5 6.1 0.0 23.3
GST 87 72.4 27.8 38.3 0.0 138.5
SNC 32 1.3 3.6 3.0 0.0 7.9
EXC/SPR 3 0.0 0.0 0.0 0.0 0.0
Totals (b) 775 420.4 122.3 119.4 62.0 724.1

(a) Notional amounts are generally the potential tax effect of carried forward losses.

(b) Totals may not equal the sum of entries on the settlement register because of rounding.

(c) 'Pre-settlement position' is as defined in the Commissioner of Taxation's annual reports.

Source: Tax Office settlement register

3.8 Tables 4 and 5 break-up the 2007-08 settlement case numbers and variance of liabilities by the point in the dispute resolution process at which the settlement occurred.

Table 4: Settlement case numbers recorded over the 2007-08 income year by Tax Office business line and resolution point
Tax Office business line Resolution point
Audit Objection AAT Federal Court Totals
LBI 21 4 1 4 30
SME 48 8 7 2 65
MEI/ATP 232 135 189 2 558
GST 14 32 35 6 87
SNC 28 1 3 0 32
EXC/SPR 0 2 1 0 3
Totals 343 182 236 14 775

Source: Tax Office settlement register

Table 5: Settlement case liability variances recorded over the 2007-08 income year by Tax Office business line and resolution point
Tax Office business line Resolution point
Audit Objection AAT Federal Court Totals (a)
$m $m $m $m $m
LBI 139.6 * * * 408.5
SME 124.8 * * * 146.3
MEI/ATP 5.7 8.0 * * 23.3
GST 84.3 47.0 8.0 1.3 140.7
SNC 7.4 * * 0.0 7.9
EXC/SPR 0.0 * * 0.0 0.1
Totals (a) 361.9 317.2 25.0 22.6 726.8

Note: Caution must be exercised in drawing any firm conclusions from these figures because of the impact that larger settlement cases can have on proportions in any one year.

Note: * denotes omission of figure to preserve confidentiality of tax affairs.

(a) Totals may not equal the sum of entries because of rounding.

Source: Tax Office settlement register

3.9 The current data is useful in helping to identify potential anomalies and patterns. This provides a starting point for greater investigation, analysis and management's understanding as to why amounts may be reduced. The IGT is pleased that the Tax Office has recently commenced some of this work — such as examining the reasons for the amounts of losses varied in settlement.

3.10 A major focus for the IGT review was to determine the reasons for the Tax Office's departure from initial active compliance positions in settlement and why these settled positions could not have been reached earlier in the active compliance activities, on the basis of the available information.

3.11 During the IGT review, the Tax Office acknowledged the need to take a more 'whole of dispute' approach with emphasis on moving dispute resolution closer to the point of the original decision through a range of measures including the use of alternative dispute resolution and differentiated approaches to dispute resolution. This issue is discussed further in another IGT review, the Review into the underlying causes and the management of objections to Tax Office decisions. This review builds on that aim in the context of settlements.

3.12 This review, and the case studies undertaken, showed that issues and potential improvements to the Tax Office's settlement processes fell into two broad categories:

  • Code of settlement processes: the processes that start from considering the finalisation of a tax case by a formal settlement process, including the procedures set out in the Tax Office's Code of Settlement Practice; and
  • Active compliance matters affecting settlements: the processes upstream of the formal settlement process that may bring about settlement or underlie why it becomes a necessary consideration, or influence how settlement processes are undertaken. These processes include the compliance activities themselves including the formulation and application of the Tax Office view of the law, the issue of amended assessments, and links to dispute resolution processes such as objections and appeals.

IGT findings

Code of settlement processes

3.13 The Tax Office created its Code of Settlement Practice in 1991. Since then, the Tax Office has made a number of business improvements to the settlements process, including a 15-point program endorsed by the Tax Office Executive in July 2003. Improvements include:

  • corporate assurance arrangements, including mandatory quality reporting and analysis;
  • fixing accountabilities for process management;
  • mandatory registration of settlement details in a corporate register;
  • data checking;
  • improvements to the Code of Settlement Practice itself;
  • communications and education activities, with supporting on-line resource materials; and
  • improvements to policy and work practices.

3.14 Despite these improvements, the Tax Office's settlement processes continue to attract community criticism and media attention. These criticisms reflect perceptions of:

  • a lack of transparency and equity in relation to settlement cases, with a resulting push to publish details of settlements including the amounts involved;
  • the integrity of settlement information held and reported by the Tax Office;
  • consistency of settlement decisions across different types of taxpayers, including perceptions that large taxpayers get better access to settlements and better settlement 'deals' than less powerful taxpayers; and
  • settlement processes being used by the Tax Office to finalise matters where easier and cheaper approaches could have been more appropriate, but where the Tax Office seeks to 'quarantine' cases that may erode its public position on an issue by using settlement processes to prevent any further action.

3.15 In recognition of these criticisms, and the available data considered by this review, including certain active compliance activities ending in settlement (case studies), the Tax Office itself recognised that these perceptions existed and acknowledged that there were problems in some aspects of its management of settlement processes. The Tax Office recognised that there is obvious scope for further improvement in its overall administration of settlements.

3.16 The IGT's findings in respect of the code of settlement processes are that at a systemic level, the cases examined by the IGT generally evidenced compliance with Tax Office policies and processes aimed at promoting consistency and transparency of access to settlements, treating taxpayers in comparable circumstances consistently and requiring its officers to be, and be seen to be, fair and equitable in their official dealings, including negotiation of settlements. However, the IGT's, and some of the Tax Office's internal analysis, also substantiated the criticisms and negative perceptions outlined above as follows.

Settlement register

  1. The settlement register is the Tax Office's key system for recording settlements made formally under the Code of Settlement Practice. The register is used as the basis for reporting information on settlements, including in the Tax Office's annual reports. In a proactive response to this review, and its own concerns about the quality of data in the register, the Tax Office mounted an internal audit of the integrity of the recording settlement cases in the settlement register. An analysis of a sample reconciliation of settlement source documents (such as audit papers and settlement deeds) with the information contained on the settlement register, found a 1 in 4 error rate for the sampled entries recorded on the settlement register. The errors were found to be high in number but generally low in value. The Tax Office advises that the errors detected by the internal audit had no impact on the Tax Office's financial statements. Nevertheless, the integrity of the Tax Office's management of the register and the quality of data in the register clearly need improvement.

Consistency of settlement terms

  1. The IGT case studies uncovered an example where a taxpayer's representative asked for certain favourable terms of settlement — a reduction in the settlement amounts that was equivalent to the tax effect of future deductions for that interest which accrued from the liabilities settled. These terms appeared to be available to certain taxpayers but were not generally available to other taxpayers. Although these terms did not reduce the overall revenue, they helped the taxpayers concerned to increase their cash flow. The example does, however, raise the principle that the terms of settlement should be consistent, and consistently available to taxpayers, in similar circumstances.

Perceptions of favouritism

  1. Where the Tax Office made significant reductions of tax in settlements with large taxpayers, this appeared to be a product of the large amounts involved in original position papers or assessments, the complexity of the issues and the Tax Office's difficulty in sustaining its view of the law, rather than any systemic favouritism or leniency towards large taxpayers. It is likely that perceptions of favouritism have persisted because the Tax Office has not provided more detailed, public explanations for large amounts varied in large taxpayer settlement cases.

Perceptions of code of settlement processes

  1. The Tax Office has a framework of policies and processes aimed at promoting consistency and transparency of access to settlements, treating taxpayers in comparable circumstances consistently and requiring its officers to be, and be seen to be, fair and equitable in their official dealings, including negotiation of settlements. At a systemic level, the cases examined by the IGT generally evidenced compliance with these policies and processes. However, some cases had features which showed how negative community perceptions of code of settlement processes could arise, and indicated opportunities to improve community confidence.
    • Perceptions of fair Tax Office treatment were challenged in cases where in negotiations the Tax Office did not disclose material changes to its approach or view of the law. Disclosure would have reduced the range of settlement points, and avoided taxpayers' uncertainty and misconceptions about their likely liability.
    • Some cases showed how perceptions arise when pressure is brought to bear by debt collection action (either as part of the 50/50 concessional policy or active debt recovery) on disputed liabilities raised in the following circumstances.
      • Taxpayers had 'disengaged' from the Tax Office, or refused to communicate with the Tax Office in whole, or for a period. In these circumstances, the Tax Office issued assessments on the available evidence — resulting in tax liabilities that were in excess of an amount that would have been raised if the taxpayer had not disengaged from the Tax Office and had provided the best evidence available to the taxpayer.
      • In the absence of taxpayer engagement, debt collection action commenced.
      • Taxpayers sought to re-engage with the Tax Office during debt collection action, or earlier. However, taxpayers perceived unfair Tax Office treatment when debt collection action was being taken at the same time as they were seeking to provide better evidence. This perception was compounded where taxpayers became aware that the Tax Office was considering settlement to resolve the dispute.
      • The Tax Office's functional separation of debt collection and tax liability dispute resolution resulted in missed opportunities to successfully re-engage with taxpayers to resolve the matter efficiently. These missed opportunities increased costs, by pursuing a debt that was in excess of that ultimately determined, and promoted perceptions of unfair treatment in the circumstances.
    • Other cases evidenced the Tax Office using settlements where it had conceded the technical point and where allowing objections would have therefore been more appropriate. There will however continue to be circumstances where the Tax Office does not concede the technical point but will for other reasons enter into settlement. In circumstances when the Tax Office concedes a technical point, this should be done by allowing the objection rather than through settlement; otherwise, taxpayers will be disadvantaged.
    • The Code of Settlement Practice sets out circumstances that indicate whether settlement is appropriate or inappropriate (see Appendix 2 for the text of paragraphs 25-27). Some cases examined revealed a difficulty in applying these paragraphs in a manner that appeared to be consistent and provided fair outcomes. Greater clarity on these circumstances would help to improve fair outcomes.
    • Paragraph 25 of the code (amongst other things) says that it would be generally inappropriate to settle where, for example, the settlement would involve inconsistency of treatment for taxpayers in comparable circumstances. However, in some cases involving a number of taxpayers, taxpayers with materially similar circumstances were treated on a more concessional basis over time. The IGT accepts that the conditions of settlement may change over time in multi-case issues and that the Tax Office should not be required to reopen all settled cases to ensure that all are given exactly the same terms of settlement. However, the IGT believes that the Tax Office should reopen settlements where it has changed its view of how the law applies to an issue in a way that would have materially reduced (or negated) amounts settled on an earlier, different Tax Office view. The IGT drew cases of this type to the Tax Office's attention and the Tax Office undertook to re-examine earlier cases to determine whether to afford the more concessional view of the law to taxpayers with materially similar circumstances. The IGT does not believe that the Tax Office should be required to proactively reopen all cases in these circumstances. However, settlement deeds should give taxpayers the right to reopen their cases in defined circumstances.
    • Settlement deeds examined by the IGT in some cases showed that taxpayers were being required to agree to conditions that were not related to the matter being settled, including making broad commitments to being compliant taxpayers or agreeing to raise all tax-relevant transactions with the Tax Office in the future. The IGT considers that conditions of settlement imposed on taxpayers should relate only to the matter being settled.
    • Settlement deeds also required taxpayers to have made a 'full and true disclosure of all relevant facts'. This allows the Tax Office to reopen the basis for the settlement if the taxpayer has withheld material facts. However, the clause also requires the taxpayer to undertake an extensive and onerous examination of documents and other potential evidence before the taxpayer can be confident that this condition is satisfied — thus defeating the purpose of an early and comparatively less costly resolution of the dispute. The clause also unfairly favours the Tax Office because taxpayers are unable to reopen the settlement if they discover material information that favours their position. The IGT considers that an appropriate balance between providing a reliable basis for finalising a dispute and avoiding imposing unduly onerous compliance costs could be struck by requiring the taxpayer to enter settlements on the basis that the taxpayer has revealed all material facts known by them at the time of settlement and requiring them to disclose any further material facts which may become known after the execution of the deed of settlement. The IGT has also been made aware of a number of settlements in which the Tax Office has agreed with these terms of settlement.

Broader conclusions and observations

3.17 The IGT also reached some broader conclusions and observations about the code of settlement processes as follows.

  1. The settlements process is a necessary and important feature of tax administration. Providing there is community confidence in the integrity of the system, settlements are an efficient and effective means of finalising appropriate cases. The IGT would be concerned if Tax Office action and processes were to reduce access to settlements as a means to resolve tax disputes. However, where cheaper, quicker and more conventional resolution approaches are available, notably the allowing of taxpayers' objections, they should be used in preference to the settlements process.
  2. There is a perception that the Tax Office cannot settle primary tax amounts. This appears to be based on paragraphs 15-17 and 27 of the code. The code sets out the general rule that the Commissioner does not forego tax properly payable, and will, as soon as practicable, seek to collect the full amount of that tax. 'Even if the application of the law is uncertain, or there is insufficient information to draw a firm conclusion, it has always been open to the Tax Office to consider whether or not an adjustment on a particular issue should be made. In cases of this nature, consideration of the law is often on an "all or nothing" basis' (paragraph 16). Paragraph 27 also states that '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, when paragraphs 17, 19 and 25-27 of the code are read together they expressly provide that settlement is an exception to this general rule. This exception recognises that 'there will be circumstances in which the strictness of that general rule must be tempered by the need for reasonable and sensible administration and good management of the tax system'. Further, the second dot point in paragraph 26 expressly provides that settlement is appropriate where '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)'. Even though the Tax Office may have an established view of the law, paragraph 27 expressly provides that the Tax Office is prepared to reconsider the correctness of this view.

    The IGT considers that the code (when read as a whole) provides an appropriate balance between the general rule of not foregoing tax properly payable (that is, minimising the risk of treating tax liabilities as negotiable debts), and providing scope for the Tax Office to consider on a case-by-case basis whether primary tax should be discounted to reflect litigation risk in circumstances where the particular facts, evidence, application of the law or application of the Tax Office's view of the law to the facts presents sufficient difficulties that warrant settlement. On a procedural level, where the Tax Office settles contrary to its public position, it should also quickly consider whether its public position should be amended to reflect the effect of sustainable alternative views — for example, considering whether the public view should acknowledge that a particular type of factual matrix may lead to a different outcome.

  3. The IGT does not favour publication of details of individual settlement cases. As well as raising privacy concerns, publication of settlement details would be likely to deter taxpayers from entering into settlement arrangements where it is in the interests of good administration to do so. Transparency should be achieved by publicly reporting the aggregate amounts of tax reduced from original Tax Office compliance-raised liabilities in all categories of cases including objections, appeals, and settlements.
  4. Integrity of the Tax Office's management of settlements should be assured by applying the Tax Office's Integrated Quality Framework (IQF) and by managing settlements on the Tax Office's corporate case management system (Siebel) with strong systematised controls. The IGT notes that the Tax Office is already planning to adopt both these approaches.
  5. Greater confidence in the Tax Office's settlement processes would also be engendered by improving its upstream active compliance processes.

Active compliance matters affecting settlements

3.18 The quality of active compliance activities can directly affect subsequent dispute resolution processes in terms of the costs, time taken and the quality of the taxpayer experience.

3.19 The Tax Office has a substantial framework of policies and procedures for the conduct and finalisation of active compliance activities, including a supporting framework for technical and strategic issues management. However, some of the cases examined evidenced areas in which more could be done to reduce costs and delays in subsequent dispute resolution processes.

3.20 Certain cases examined in this review (those involving numbers of taxpayers with common issues in dispute) highlighted a further opportunity for the Tax Office to reduce costs and delays in subsequent dispute resolution processes by improving the robustness of initial Tax Office views, announcing those views and giving taxpayers sufficient time to adjust their arrangements to meet the Tax Office's announced views before compliance activities are started.

3.21 The IGT's findings in respect of the active compliance matters affecting settlementsare as follows, and in some cases are highlighted as systemic issues that have surfaced in earlier IGT reviews.

Technical escalation and communication processes

  1. The Tax Office has processes aimed at ensuring that active compliance decisions are taken on the basis of pre-existing precedential Tax Office views unless the application of the law is 'straightforward'. Where those precedential views later become unsustainable, the Tax Office requires them to be formally amended and communicated to affected taxpayers and their representatives. However, some cases examined highlighted that more could be done to ensure that these processes are complied with. In some cases examined, there were clear signals that the Tax Office's view of the law was not sustainable, but Tax Office compliance officers persisted with the unsustainable view. Problems were also compounded by delays in escalating matters to technical areas.

Active compliance management approaches

  1. Cases examined by the IGT (including multi-case issues) revealed a tendency for compliance officers to look for short cut, over-simplified technical approaches to be applied across the board. The IGT believes that this tendency is in no small part the product of the Tax Office pursuing 'leveraged' active compliance strategies that seek to enforce compliance with the minimum amount of field effort by the Tax Office. In the fourth report of the IGT's major, complex issues review, the Tax Office agreed to improve the project management capability for large, complex issues, including undertaking adequate field work to identify the issue and differentiate categories of taxpayers' circumstances, and testing the quality of information provided to taxpayers to help them meet their obligations before a compliance strategy is designed and commenced. Cases examined in this review reinforced the need for this improvement across all levels of active compliance strategies. The quality and robustness of Tax Office active compliance views of the law is emerging as a major systemic issue that underlies much of the tension in tax administration.


  1. The Tax Office seeks to promote a high level of communication during active compliance activities. A high level of communication allows matters to be resolved relatively quickly, cheaply and more transparently. This is so long as it is directed towards ensuring both parties have a strong understanding of the strengths and weaknesses of each party's case (including aspects such as the evidence relied upon and the weight of evidence).Cases examined highlighted opportunities to improve communication in the following types of cases:
    • breakdowns in communication during active compliance activities, which result in the Tax Office issuing amended assessments before testing its position with the taxpayer;
    • the Tax Office not sufficiently explaining its position (including why the auditor rejected the taxpayer's evidence, how the auditor weighed the evidence and how the evidence was relevant to the issues); and
    • the Tax Office not clearly communicating which portion of liability represents a 'protective position' (a position taken in the absence of evidence or rejection of the taxpayer's evidence without sufficient explanation) and what further evidence would likely affect the taxpayer's liability.

Evidentiary matters

  1. A good evidentiary basis for decisions improves their robustness and minimises the potential for a subsequent need to settle, thereby reducing time and costs and improving the taxpayer experience. The Tax Office has policies and processes to support auditors in determining the relevant evidence on which to support conclusions of fact in reaching compliance decisions. However, in many settlement cases examined, there was a substantial gap between the Tax Office position and the settled position. In some cases, this was because the taxpayer had initially disengaged from the process, but re-engaged during settlement negotiations. In other cases, this was due to a lack of compliance officer discipline in dealing with evidentiary matters. The Tax Office advises that it has already commenced work to address these issues and improve auditor discipline in a range of matters, including dealing with evidentiary issues.

Penalty outcomes

  1. The settlement register shows that for settled cases over a five-year period (2003-04 to 2007-08), on average, approximately 30 per cent of penalty amounts were conceded by the Tax Office. Adjustments of penalty amounts can occur as an automatic consequence of adjustments to primary tax as well as changing the rate of penalty. A break-up of the tax, penalty, interest and notional amounts varied in settlement over the last five years cannot be provided because of errors in how notional amounts were recorded in the settlement register and the mixing of notional amounts with primary tax amounts.In some large variance cases examined by the IGT review team, the original estimated penalties were approximated for the purposes of the register. They were not communicated to the taxpayer or imposed, but might have been imposed were it not for the Tax Office subsequently taking into account significant factual, evidentiary and legal matters which occurred or came to light in the course of the settlements.

    In other cases, the penalties were communicated and imposed on taxpayers, but were later reduced (by either reducing the rate or withdrawing the penalty) because of a subsequent reconsideration of the evidence that was already at hand before the compliance activity was finalised.

    The IGT believes these cases evidence unsustainable penalty decisions because of a lack of compliance officer discipline in dealing with evidentiary matters for the rate of penalty sought to be imposed. Unsustainable penalties act as pressure on taxpayers in settlement and promote perceptions that penalties are used to leverage settlement outcomes.

    As stated above, the Tax Office advises that it has already commenced work to improve auditor discipline in a range of matters, including dealing with evidentiary issues. For compliance cases which may lead to the imposition of higher levels of culpability penalties (including serious non-compliance cases, some high-wealth individual cases and cases where a reasonably arguable position is absent), the Tax Office advises that it will mandate a range of new processes to improve compliance decision-making and review such decisions through its IQF processes before decisions are communicated to taxpayers.


  1. In cases involving taxpayer-obtained valuations, the Tax Office relies on expert valuer advice to test these valuations. However, different experts can reasonably disagree on some matters. Clause 26 of the Code of Settlement Practice specifically gives disputes over valuations as an example of where settlement may be appropriate. However, in some cases examined, the Tax Office waited until litigation was imminent before considering whether a negotiated settlement might be appropriate. This exposed the Tax Office and taxpayer to unnecessary costs and delay that could have been minimised if the potential downstream treatment (AAT's or Court's treatment) of evidentiary aspects of these disputes was considered earlier.