A6.1 This appendix provides an outline of the Tax Office audit procedures relevant to the application of penalties and interest. These procedures are set out in audit process maps which are specific for each business line.
A6.2 The audit process map states that a Tax Office view must be established and communicated to the taxpayer before the case officer considers the application of penalties.
A6.3 For example, the large business audit process map recommends that the case officer issue a position paper, which sets out the Tax Office view on the issues, to the taxpayer prior to preparing the final audit report. The case officer's team leader must approve the conclusions and recommendations reached in the audit report.
A6.4 The audit process map then provides that once the case officer has determined the final Tax Office view, the case officer is required to issue a letter to the taxpayer which outlines:
- the outcome of the audit and the Tax Office view
- the details of any proposed income tax adjustments
- the details of any administrative penalties to be imposed
- the details of the general interest charge.
A6.5 The audit process map states that this letter should also provide an opportunity for the taxpayer to present information or evidence that may mitigate the rate of any administrative penalty or GIC to be imposed.
A6.6 The audit process map also requires that the case officer conducts a final interview with the taxpayer. At this final interview the case officer is required to explain to the taxpayer the Tax Office's view on the imposition and remission of administrative penalties and GIC. Where the taxpayer has not already provided mitigation arguments, the audit process map states that the case officer should take on notice any submissions made by the taxpayer on the imposition or remission of administrative penalties and GIC. The audit process map also provides case officers with a list of all the relevant Tax Office corporate documents dealing with imposition and remission of penalties.
A6.7 Following the final interview, the audit process map states that the case officer should finalise the audit report. The final audit report must provide information regarding the imposition of administrative penalties and charges and must include a summary of the circumstances that led to the tax shortfall, including:
- the audit results and adjustments
- the material facts and the evidence relied upon relevant to the decision on administrative penalties and charges
- the taxpayers contentions and mitigation arguments
- the research and interpretation of legislation/cases and legal principles relevant to the facts
- the decision and reasons for the decision.
A6.8 The audit process map also states that the report must contain enough information to justify a recommendation as to whether or not reasonable care was taken, and if not, whether the taxpayer displayed intentional disregard of the law, recklessness or a failure to take reasonable care. The final audit report must also detail whether there were any mitigating or aggravating factors and whether there were any circumstances warranting a remission of the penalty.
A6.9 The audit process map requires that the final audit report show the team leader has authorised the raising of an assessment or amended assessment and the administrative penalties and GIC to be imposed and remitted.
A6.10 Once the final audit report has been completed and approved by the team leader, the case officer is required to send the taxpayer a finalisation letter within seven days of the approval.