What is an objection?
3.1 A uniform code of procedures applies in relation to all objections, reviews and appeals under Commonwealth tax statutes, including the Income Tax Assessment Act 1997 (ITAA 1997), Income Tax Assessment Act 1936 (ITAA 1936), Taxation Administration Act 1953 (TAA), Fringe Benefits Tax Assessment Act 1986 (FBTAA), A New Tax System (Goods and Services Tax) Act 1999 and Superannuation Guarantee (Administration) Act 1992. This uniform code is contained in Part IVC of the Taxation Administration Act 1953 (TAA).
3.2 The uniform code in Part IVC does not apply unless a provision in a relevant Act (for example, ITAA 1936 or ITAA 1997) specifically gives a person 'dissatisfied with' a decision the right to object against it in accordance with Part IVC of the TAA.
3.3 For example, section 175A of ITAA 1936 gives taxpayers the right to object against an assessment. Taxpayers may also object against the Commissioner's failure to make a private ruling. However, a decision refusing to grant an extension of time to make an election under section 139E of ITAA 1936 (to include the discount on employee share options in assessable income for the year the options are acquired) is not reviewable under Part IVC. Similarly, Part IVC does not apply to decisions relating to the amount to be withheld under the Pay As You Go withholding system.
3.4 The expression 'dissatisfied with' is not defined in Part IVC, but it seems that it means more than its ordinary dictionary meaning of 'displeased with' and that an entity cannot object against a taxation decision unless the decision has legal effect in relation to that entity (CTC Resources NL v FC of T (1994) 27 ATR 403 at 414, 435). A mere curiosity or interest in the decision will not suffice. It should be noted that most taxation decisions may be challenged under Part IVC.
3.5 For instance, taxpayers' objection rights are not limited to instances where taxpayers are dissatisfied with an amended assessment arising from audit activity but include instances where taxpayers are seeking to correct their own assessment. This was confirmed in Case X2 90 ATC 105 where Senior Member Roach held that a taxpayer whose taxable income is assessed in accordance with his own erroneous return maintains the right of objection to an excessive assessment, stating that such a person is 'dissatisfied with the assessment'. Senior Member Roach went on to say that a taxpayer does not have to point to some 'wrongdoing' on the part of the Commissioner and it is sufficient that he is dissatisfied with the assessment, even though he is the sole cause of that dissatisfaction.
3.6 The relevant assessment, determination, private ruling, notice or decision objected against is referred to as a 'taxation decision' for the purposes of Part IVC and the objection is referred to as a 'taxation objection'.23 If two or more taxation decisions are notified in the one notice, they are treated as one decision for Part IVC purposes, except to the extent that a decision consists of an ineligible income tax remission decision — that is taken to be a separate objection decision for the purposes of any review or appeal.24
3.7 Where Part IVC of the TAA does not apply to taxpayers, then a taxpayer has to seek alternative remedies, for example, review under the Administrative Decisions (Judicial Review) Act 1977.
Types of taxation decisions
3.8 Listed below are examples of some common taxation decisions that are made and details of whether they can be objected to in the manner set out in Part IVC of the TAA.
Income and fringe benefits tax assessments
3.9 Section 175A of the ITAA 1936 provides that taxpayers dissatisfied with an income tax assessment may object against it in the manner set out in Part IVC of the TAA.
3.10 Section 78A of the FBTAA provides that taxpayers (employers) dissatisfied with a fringe benefits tax assessment may object against it in the manner set out in Part IVC of the TAA.
3.11 Taxpayers can request a remission of a failure-to-lodge penalty under section 298-20 of Schedule 1 to the TAA by writing to the Tax Office, setting out the circumstances and basis on which remission is sought.
3.12 If the failure to lodge penalty remaining after the remission request has been considered is more than $220 per document and a taxpayer is dissatisfied with the decision, then subsection 298-20(3) provides for objection rights under Part IVC of the TAA. No objection rights exist if the penalty is $220 or less per document.
3.13 Section 298-20 also applies to other administrative penalties, such as the failure-to-withhold penalty.
Penalties relating to statements
3.14 Where taxpayers are dissatisfied with an assessment of the amount of an administrative penalty imposed by Division 284 of Schedule 1 to the TAA (statements, unarguable positions and schemes), then section 298-30 of Schedule 1 to the TAA allows them to object to it in the manner set out in Part IVC of the TAA.
Objections against interest charges
3.15 The Commissioner has the discretion to remit all or part of the GIC under section 8AAG of the TAA. There is no provision which allows for an objection under Part IVC of the TAA against the GIC.
3.16 The Tax Office's work practices provide that where taxpayers have sought to object to the GIC only, then they should be advised that their objection is invalid but that their request will be treated as a request for remission. Where an otherwise valid objection contains a request for remission, the GIC issue should be determined together with the objection. However, the part of the decision relating to GIC remission does not form part of the formal objection decision.
3.17 A decision refusing to remit all or part of the GIC can be reviewed only by way of judicial review.
3.18 SIC applies to shortfalls of income tax that are revealed when the Commissioner amends a taxpayer's assessment.25 The Commissioner may remit all or part of the SIC under section 280-160 of Schedule 1 to the TAA. The Commissioner must provide taxpayers with a written statement of the reasons for a decision not to remit an amount of SIC where the taxpayer requested the Commissioner, in the approved form, to remit the amount.
3.19 Where the amount of SIC not remitted by the Commissioner exceeds 20 per cent of the tax shortfall, then, under section 280-170 of Schedule 1 to the TAA, taxpayers have the right to object to the SIC in the manner set out in Part IVC of the TAA.
Indirect tax reviewable decisions
3.20 Indirect tax decisions that attract objection rights are referred to as 'reviewable indirect tax decisions'.
3.21 The making of an assessment under section 105-5 of Schedule 1 to the TAA or the amendment of an assessment under section 105-25 of Schedule 1 to the TAA are both reviewable indirect tax decisions.
3.22 Section 110-50 of Schedule 1 to the TAA provides that an entity that is dissatisfied with a reviewable GST decision may object to it in the manner set out in Part IVC of the TAA. The section also provides an exhaustive list of reviewable GST decisions and also applies to reviewable GST transitional decisions.
3.23 Importantly, a recipient of a private indirect tax ruling cannot object directly against the ruling as it is not a reviewable decision under the TAA. However, a recipient may request that the Commissioner make an assessment that gives effect to the ruling and then object against that assessment.
3.24 Part IVC of the TAA sets out the general provisions relating to objections, including how they are to be made and how they are to be dealt with by the Commissioner.
3.25 A person making an objection must:
- make it in the approved form;
- lodge it with the Commissioner within the time set out in the TAA; and
- state in it, fully and in detail, the grounds that the person relies on.
3.26 There is currently no approved form for objections. However, the Tax Office website provides information on how to lodge objections and objection forms for tax professionals and non-tax professionals. Tax professionals must set out the following:
- the decision the taxpayer is objecting to;
- the reasons for the objection — this requires that taxpayers clearly set out the reasons why they believe that the decision is incorrect. The Tax Office requests that taxpayers set out the facts, arguments and information that would support their case. This includes the results of any legal research that supports their case (for example, references to legislation, public rulings, or case law); and
- all supporting evidence and documents — the Tax Office requests that taxpayers provide relevant evidence or documents that support their objection. Examples of evidence include copies of contracts, agreements, tax invoices, invoices, payment summaries and correspondence between the parties to the transaction. The Tax Office website also sets out the documents and facts that it requires for the most common objection topics and states that the objection process is greatly facilitated by taxpayers submitting these supporting documents. The topics covered include penalties, interest and extensions of time, capital gains, income, deductions, the Medicare levy, tax offsets and the superannuation guarantee.
Time limits for lodging objections
3.27 There are specific time limits for when an objection against a taxation decision must be lodged with the Commissioner. There are 60-day, 2-year or 4-year objection periods, depending upon the type of taxation decision to which the objection relates and, in some situations, the nature of the taxpayer.
3.28 In the case of individuals and certain companies, a person must lodge an objection with the Tax Office within two years after the notice of assessment is given to the person. This period corresponds to the time limits in section 170 of the ITAA 1936 for amending an assessment for the 2004-05 or later income years. This period applies to the following persons:
- a non-business individual;
- a company that is a small business entity (from 2007-08) or a Simplified Tax System (STS) taxpayer; or
- a person in the capacity of a trustee of a trust where the trust is a small business entity.
3.29 If the two-year amendment period does not apply (for example, if the taxpayer is a business taxpayer that is not a small business entity or an STS taxpayer), an objection against an assessment must be lodged within four years after notice of the assessment is given to the taxpayer. In the case of companies and other full self assessment taxpayers, the four-year objection period commences from the date notice of deemed assessment is deemed to be served on the taxpayer. The taxpayer's right to self amend, the Commissioner's right to amend, and the taxpayer's right to object are all in alignment: they must all be undertaken within four years.
3.30 Where taxpayers are out-of-time to lodge a self amendment, their only option is to seek an extension of time to lodge an objection as the Commissioner has no discretion to allow an extension of time for the lodgement of a self amendment.
3.31 Where an assessment has been amended by the Commissioner, the right of taxpayers to object is limited to the particular amendment. The objection period for lodging an objection against an amended assessment is similar to the objection period in relation to the original assessment. If the objection period in relation to the original assessment is two years, then an objection against an amended assessment must be lodged within the later of two years after notice of the original assessment was served on the taxpayer and 60 days after notice of the amended assessment is served on the taxpayer. Where the objection period in relation to the original assessment is four years, an objection against an amended assessment must be lodged within the latest of four years after notice of the original assessment was served on the taxpayer and 60 days after notice of the amended assessment is served on the taxpayer. Importantly, the Commissioner may amend assessments at any time to give effect to decisions on review or appeal or as a result of objections made by taxpayers.26
Requests for an extension of time to lodge objections
3.32 It is clear that Parliament has laid down time limits for the amendment of assessments by taxpayers and the Commissioner, and for the lodgement of objections. However, at the same time Parliament has afforded the Commissioner the discretion to deal with a late objection as if it has been lodged within time.27
3.33 If the period for lodging an objection has passed, then taxpayers may lodge the objection with the Tax Office together with a written application requesting that the Commissioner deal with the objection as having been duly lodged. The request must state in full and in detail the circumstances for the failure to lodge within the required time. The Commissioner is obliged to consider the request and decide whether to agree to or to refuse. The Commissioner must give taxpayers written notice of his decision whether to allow an extension of time. If the Commissioner grants the request for extension of time, then the objection is taken to have been lodged within the required period. If an extension of time is refused, then taxpayers may apply directly to the Administrative Appeals Tribunal for a review of the decision to refuse an extension of time to lodge an objection.
3.34 The leading case concerning the discretion to allow an extension of time to lodge an objection is the Federal Court judgement of Hill J in Brown v FC of T 99 ATC 4516, 6 May 1999 which set out a number of factors to consider:
What is required is the balancing of the delay; the explanation for it; the circumstances which gave rise to it and such prejudice if any as may be shown to exist to the Commissioner against the prejudice which may arise to a taxpayer who has by reason of the failure to object in time lost the right to a review of the assessment.
3.35 Importantly, Hill J emphasised that the decision maker should not lose sight of the fact that the discretion is an ameliorating provision designed to avoid injustice.
3.36 From a legislative perspective, the period for an amendment reducing taxpayers' liability mirrors those for amendments increasing taxpayers' liability. This approach has been supported in the past on the basis of fairness — if the Tax Office can increase taxpayers' liability within a certain timeframe, then taxpayers should be able to request a reduction within that same timeframe. However, with a reduction in the amendment period for increasing the liability of individuals and very small businesses from four years to two years, the question arose as part of Treasury's RoSA report whether symmetrical periods should be maintained, or whether a set amendment period of four years for all amendments reducing taxpayers' liability was preferable.
3.37 The report considered that a standard four-year period for all types of taxpayers where they had overstated their liability was preferable, because it would allow more time for them to correct their mistakes and would promote certainty through a single rule. However, the report also sought to maintain the formal symmetry of treatment in the law for amended assessments from the point of view of balance and fairness. In the course of that review, the Tax Office advised that both goals could be achieved by exercising its legislative discretion to agree to a request to extend the time for an objection. This would be exercised in circumstances where the new shorter review periods might otherwise deprive taxpayers of a legitimate claim for a credit amendment. In support of this proposition, the Tax Office stated that it already accepted many late objections.
3.38 Recommendation 3.9 of the RoSA report stated that the Tax Office should generally accept a request for an extension of time to lodge an objection from individuals or very small business taxpayers where the request is received within four years of the original assessment and taxpayers have at least an arguable case for the objection to be allowed in whole or in part. However, such extensions would not usually be granted where the Commissioner is out of time to amend an assessment of associated taxpayers to include income which was incorrectly included in the first taxpayer's assessment.
3.39 Law Administration Practice Statement PS LA 2003/7 outlines the Tax Office's present approach to making decisions on requests for an extension of time to lodge an objection. The Practice Statement requires staff to consider the factors set out by Hill J in Brown's case and weigh them in the balance to decide either to agree to a request for an extension of time or to refuse it. Paragraph 22 of the Practice Statement sets out the Tax Office's position for objections against income tax assessments lodged by individuals and simplified tax system taxpayers. It states that where taxpayers have a two-year time limit for lodging an objection against an income tax assessment, the Commissioner will generally accept a request for an extension of time to lodge an objection if:
- it is received by the Commissioner within four years after the original notice of assessment was given to the taxpayer; and
- the objection discloses an arguable case for allowing the objection.
3.40 Practice Statement PS LA 2003/7 also sets out four factors that must be considered in determining requests to deal with late taxation objections as if they were lodged within time. They are the taxpayer's explanation for the delay, the circumstances of the delay, whether the taxpayer has an arguable case for the objection, and other relevant matters.
3.41 The net effect of the current administrative framework for the lodgement of amendments and objections is that objections are not confined to cases where there is a pre-existing dispute between the Tax Office and taxpayers. In fact, the objection process can be and is utilised by taxpayers to seek an amendment to their assessments to reduce their tax liability where they are out of time to do so under the amendment provisions. Table 3.1 provides a summary of the different amendment periods and requirements for extension of time requests.
|Taxpayer type||Tax Office amendment period||Taxpayer amendment period||Objection periods||Conditions for an objection Extension of Time request|
|Individual, small business taxpayers||Two years||Two years||Two years||If within four years — PS LA 2003/07 states that the Commissioner of Taxation will accept extension of time requests where the objection discloses an arguable case.
If beyond four years — the taxpayer needs to request an extension of time to lodge an objection addressing the factors set out in PS LA 2003/07.
|Business taxpayers other than small business taxpayers||Four years||Four years||Four years||The taxpayer needs to request an extension of time to lodge an objection addressing the factors set out in PS LA 2003/07.|
State fully and in detail all grounds of the objection
3.42 Generally, if the objection identifies that a taxation decision is wrong in a particular way and gives reasons, then it will satisfy this requirement. A vague or general statement that a taxation decision is wrong in fact or law is not considered to comply with this requirement. Taxation Ruling TR 96/12 provides further information on the Tax Office's view of what is required.
Commissioner required to make an objection decision
3.43 If a taxpayer has lodged an objection within the required period and the Commissioner has not determined the objection after 60 days from the date of lodgement, the taxpayer may give the Commissioner a written notice requiring an objection decision to be made.28
3.44 If the Commissioner has not made an objection decision by the end of the 60 days after being given the notice, the Commissioner is deemed to have disallowed the taxation objection.29 This then entitles a taxpayer to seek external independent review of the taxation objection either at the Administrative Appeals Tribunal or the Federal Court.
3.45 The objection function sits within the compliance sub-plan and corporately is managed through the Executive Leadership Forum.
3.46 As part of that forum there is a specific senior executive officer who acts as a capability leader responsible for interpretive advice.
3.47 Organisationally, the Tax Office is structured into divisions known as business lines. A business line focuses on a type of taxpayer such as small business or large business, a type of tax such as excise or goods and services tax. Each business line is then responsible for managing its objection work flow. The day-to-day handling of objections is the responsibility of each of the business lines with reporting on objections back to the Tax Office executive through the Heartbeat report. Each business line has its own team structure, reporting, checklists, quality assurance procedures, feedback loops and further information practices.
3.48 The Tax Office's management and administration of objections is guided by a number of policy and procedural guidelines.
3.49 Taxation Ruling TR 96/12 explains what constitutes a valid objection against an income tax assessment. In particular, the ruling explains what an assessment is and the requirement that the grounds of objection must be stated 'fully and in detail'. It also addresses the issue of how many objections may be lodged against an assessment and explains the difference between an amendment request and an objection.
3.50 All business lines follow the general business procedures outlined in the Tax Office's Online Resource Centre for Law Administration (ORCLA) with some variations to take in business line needs. ORCLA for objections was launched on 13 November 2006. Practice Statement PS LA 2003/9 mandates that all staff use the policy and procedures detailed in ORCLA when undertaking objection work.
3.51 ORCLA contains the corporate policies and procedures and business lines' supplementary policies and procedures covering objections. It sets out the policies and explains the processes and procedures governing the provision of written binding tax technical advice and objections. In doing so it expands and elaborates on information provided in Law Administration Practice Statement PS LA 2008/3 Provision of Advice and section 14ZU of the TAA, which sets out how taxation objections are to be made.
3.52 Currently, the Tax Office has a computerised corporate case management system, the Technical Decision Making System, for managing all objections regardless of which area of the Tax Office is responsible for them. This system is also used to manage written correspondence, including private binding rulings.
Tax Office's internal review on the management of objections
3.53 In August 2006 the Tax Office set up a Cross-Line Taskforce on Objections Management to identify and implement best practices across various business lines, including Goods and Services Tax (GST), MEI and Superannuation. Part of the purpose of the Taskforce was to examine the work management practices for GST and to learn from the strategies used by MEI and Superannuation in successfully addressing backlogs of objections on hand. The taskforce reviewed processes and work practices and identified a number of issues and strategies. The findings and recommendations were to be shared across all business lines through the Steering Committee.
3.54 In December 2006 the Cross-Line Taskforce provided a report to the Provision of Written Advice (PoWA) Steering Committee. The report outlined a number of findings and recommendations and also identified opportunities to improve cross-business line consistency. However, the origin of the Cross-Line Taskforce was more a response to the GST objections backlog and a consolidation of work practices in ORCLA than an attempt to unify objection practices across all business lines.
3.55 The PoWA Steering Committee accepted the report and asked that the project leader develop a concept brief for implementing the recommendations. In February 2007 the PoWA Steering Committee endorsed a new project team with representatives from all business lines to oversee the assessment, prioritisation and implementation of the report's recommendations. First priority was given to how business lines count objections with a view to any changes being implemented before 1 July 2007.
3.56 In March 2007 the PoWA Steering Committee endorsed the project team recommendation for counting of objections to be managed on a correspondence basis by all business lines. Implementation strategies for changes in counting processes were to be finalised by the affected areas (High Wealth Individuals, Large Business and International (LBI) and GST) and progress reported. The project team proposed that the second project would deal with issues identified in relation to the treatment of invalid objections. The project team also decided to look at a number of other issues, including invalid objections and further information requests. In April 2007 the PoWA Steering Committee endorsed the descriptions of the roles and responsibilities and the proposed project plan and acknowledged that priorities would shift as the project progressed.
Objections Review Project
3.57 The Objections Review Project was initiated in 2008 and is examining the Tax Office's end-to-end dispute processing system. It is seeking to develop strategies and approaches that resolve emerging and active disputes at the earliest opportunity through an integrated approach that:
- maximises the taxpayer experience;
- minimises cost and inefficiencies;
- enhances quality; and
- manages the whole dispute process including upstream (active compliance) processes and downstream (litigation).
3.58 To date, the Tax Office has implemented a number of initiatives as a result of this project, including the establishment of a dispute resolution network and the engagement of litigation experts at the objections stage. Appendix 2 contains a diagrammatic representation of the Tax Office's current approach to improving dispute resolution.
23 A taxation decision is defined as an assessment, determination, notice, decision or failure to make a private ruling against which a taxation objection may be or has been made.
24 Paragraphs 3.1 to 3.6 have been sourced from p 1,699, Australian Tax Handbook 2008 (published by Thomson Legal & Regulatory Limited).
25 SIC also applies to petroleum resource rent tax and excess contributions tax.
26 Item 6 of section 170(1) of the ITAA 1936.
27 Section 14ZX of the TAA 1953.
28 Subsection 14ZYA(1) of the TAA.
29 Subsection 14ZYA(3) of the TAA.