SECOND COMMISSIONER OF TAXATION
Mr Ali Noroozi
Inspector-General of Taxation
GPO Box 551
SYDNEY ACT 2001
24 May 2012
Dear Mr Noroozi
RE: INSPECTOR-GENERAL OF TAXATION'S REVIEW INTO THE ATO'S USE OF EARLY AND ALTERNATIVE DISP JTE RESOLUTION
Thank you for the opportunity to provide comments on your report on the ATO's use of Early and Alternative Dispute Resolution (ADR).
As your report acknowledges, in Chapter 2, the ATO is already doing an extensive amount of work to encourage the use of dispute resolution processes. This work has also been favourably commented upon by numerous external bodies that have recognised that the ATO is a leading agency in the Commonwealth on encouraging ADR.
We also think it is important to place this work in the context that the overwhelming majority of taxpayers do not dispute their tax liability. There were 434,000 audits and reviews in 2010-11 that resulted in liability adjustments and only 24,000 objections in the same year. About 17.400 of these objections were to income tax assessments and represent a tiny fraction of the 15.6 million income tax returns that were lodged last financial year. We think this shows for Australia's self assessment system good compliance by taxpayers and good risk identification that most adjustments are not disputed.
We agree with your comments that early efforts to resolve disputes and formal ADR techniques can both play effective roles in resolving tax and superannuation disputes. We believe that for most disputes the most appropriate use of their and our resources is to focus on minimising and resolving disputes as early as possible by direct communication with taxpayers, before considering whether it is necessary to engage a 3rd party ADR practitioner to assist. This is supported by our analysis published in Your case Matters that shows most objections are resolved at that stage and only a small proportion go on to litigation and in turn most of these are finalised prior to hearing (61% in 2010-11).
Your review has identified some opportunities for us to improve our processes, reporting, and publications (such as the Taxpayer's Charter and PS 2007/23) It also provides us with an opportunity to remind our staff of the importance of ongoing communication with taxpayers, particularly those who have disputed their tax liability and the importance of ensuring such taxpayers remain engaged in the tax and superannuation system.
Attached is the ATO response to recommendations (Annexure 1). The ATO accepts either fully. In principle or in part 20 of the 22 recommendations in the report, we also note that 1 of the remaining 2 recommendations is a matter for Government.
If you require further information on this matter, please contact Debbie Hastings on 02 9374 2233
Finally I would like to acknowledge the efforts of all involved in the undertaking of the review.
Second Commissioner of Taxation
[To minimise space, the appendix to the ATO's response has not been reproduced here, but has been inserted into the text of this report underneath each of the recommendations to which that text relates.]