1.1 This is the report on the review conducted by the Inspector-General of Taxation (the Inspector-General) into the underlying causes and management of objections to Tax Office decisions. This report is pursuant to section 10 of the Inspector-General of Taxation Act 2003 (the IGT Act).
1.2 On 18 January 2007 the Inspector-General announced terms of reference for this review. The terms of reference followed concerns expressed by tax professionals and certain sectors of the community regarding the dispute resolution process. The review follows the Inspector-General's review into the Tax Office's management of litigation, which found that the Tax Office conceded or settled a significant number of disputed assessments in the taxpayer's favour after the objection process but before cases were heard in the Administrative Appeals Tribunal or the Courts.
1.3 This review focused on what causes objections to Tax Office decisions and the management of objections. The Inspector-General sought input and submissions from the community to understand the taxpayers' experience and perspective in relation to lodging objections.
1.4 The terms of reference were as follows:
The timeliness and quality of Tax Office approaches upstream of objections will be explored, including audit, communication, and technical decision making insofar as they may be contributing to potentially unnecessary disputes and litigation.
The review will also examine objection resolution procedures and the administrative framework, including the laws that govern these areas.
This review will examine the extent and reasons for the Tax Office conceding cases after the objection process, focusing on the quality of decision making and processes employed in determining taxpayers' objections.
In the context of potentially unnecessary litigation, it would determine whether disputes (and their associated costs) could have been prevented and whether the broad system and sequence of amended assessment, objection, and dispute resolution could be improved. The review will also examine whether the current system minimises any disproportionate effects on taxpayers, in particular corporations and encourages alternative dispute resolution processes.
The review focus is not only on the Tax Office conduct and approaches to dispute resolution but also on the administrative systems established by the tax laws for resolving disputes between taxpayers and the Tax Office.
1.5 The aim of the review was to identify and recommend changes that would assist the Tax Office to improve the efficiency, effectiveness and fairness of the current approaches. This review is part of a wider examination by the Inspector-General of the Tax Office's approaches to settling and finalising issues with taxpayers.
1.6 The review was conducted pursuant to subsection 8(1) of the IGT Act, being a review conducted on the initiative of the Inspector-General.
1.7 Sincere thanks are extended to the Commonwealth Ombudsman, Law Council of Australia, the Institute of Chartered Accountants in Australia and the Taxation Institute of Australia who prepared written submissions for this review. The Inspector-General would also like to thank other tax practitioners and lawyers who participated in this review.
1.8 The Inspector-General acknowledges the cooperation of the Commissioner of Taxation and his staff in this review.
Structure of the Report
1.9 Chapter 2 sets out a background summary and an overview of the key findings, conclusions and recommendations for this review.
1.10 Chapter 3 provides contextual information relevant to the Tax Office's role in the administration of objections.
1.11 Chapter 4 provides a more detailed presentation and discussion of the Tax Office's performance regarding objections, including the extent and outcome of objections, the Tax Office's handling of objections from a Taxpayers' Charter perspective, and the outcome of objection decisions that proceed to litigation.
1.12 Chapter 5 discusses the causes of objections, stakeholder views on aspects of the Tax Office's compliance activity actions and sets out the Inspector-General's findings and conclusions on the various identified causes.
1.13 Chapter 6 considers in greater detail a number of aspects relating to the Tax Office's management and handling of objections. It draws from both stakeholder concerns raised in the course of the review and also other reviews that have examined internal review systems and the objections framework.
1.14 Chapter 7 sets out a brief discussion of stakeholder views on possible improvements to the objection and related review and appeal framework.