7.1 Most submissions agreed that the current legislative provisions operate satisfactorily as a basis for resolving disputes. They believe that it provides the basis for a taxpayer dissatisfied with an assessment to have the assessment administratively reviewed by the Tax Office and serve as the basis for the commencement of a process of review or appeal.

7.2 A majority of stakeholders submitted that structurally and procedurally the current system is fair and reasonable, providing for an internal reconsideration, external merits review and judicial review of primary assessments. Stakeholders suggest that it is difficult to see what additional remedial options could be added to the current system without replicating presently available reconsideration, review and complaints processes. In addition, stakeholders believe that the dispute resolution system should emphasise settlement through informal processes. By this they mean that it is appropriate that the process remains one which requires an increasing degree of effort (and therefore cost) by each of the parties as a matter proceeds through the objection and review/appeal process. However, many stakeholders believe there is scope for further improvement in the day-to-day handling and resolution of objections, especially in relation to delay and communication of decisions earlier in the dispute process.

7.3 A common theme in nearly all of the submissions received in the course of this review was the need for greater flexibility in seeking external review and the need for the dispute resolution process to be directed towards ensuring an early settlement or resolution of a dispute.

Greater flexibility in seeking external review to resolve disputes

7.4 A number of stakeholders believe that there may be merit in a legislative framework that enables taxpayers to bypass the objection process and proceed directly to external review where a taxpayer and the Tax Office have formed a conclusive view on the law. It is submitted that in such instances there may be little benefit in the objection stage, especially where senior Tax Office decision makers have been involved prior to the issue of the amended assessment and where taxpayers have already had the opportunity of receiving and responding to a position paper by the Tax Office. For example, this would be in instances where the Tax Office and taxpayer have fully considered the facts, evidence, issues and application of the law early in the dispute and there is a difference in position on the tax implications between the Tax Office and the taxpayer. Stakeholders believe that in these instances, once an amended assessment is issued, the outcome of the objection is effectively known as the Tax Office decision makers are involved prior to the issue of the amended assessment.

7.5 Stakeholders believe that in these instances there is limited value to taxpayers in the objection process. Some assert that if taxpayers had the option of immediately appealing to the AAT or Federal Court following an assessment, then this would avoid the delay which is forced upon taxpayers by the objection and disallowance process. They consider that from experience the exchange of position papers prior to assessment is, in most cases, more useful to resolving disputes than the preparation of an objection after an assessment. However, it is submitted that the objection framework should preserve the option for taxpayers who seek to make further submissions to the Tax Office — for example, those taxpayers who have not had the advantage of a large amount of interaction with the Tax Office prior to the issue of the assessment.

Review findings and conclusions

7.6 The Tax Office's approach to ensuring consistent decision making, namely, tax officers needing to apply the Tax Office view as set out in a ruling, determination or interpretative decision, may be making the objection process, in some cases, redundant. It may also be contributing to perceptions of an absence of independence in the objection process as all that taxpayers see is the same application of the Tax Office view with which they disagree.

7.7 However, the objection stage is an important part of the dispute resolution process, even where the Tax Office and the taxpayer have formed a conclusive view on the law. Properly framed, a re-examination of facts, issues, evidence and law by an independent officer may provide scope for the resolution of the dispute without the need to proceed to litigation, for instance, through mediation or settlement negotiations. The Inspector-General believes that to date objections have been handled more as a process than as a means to engage with the taxpayer with the view of resolving the dispute. In addition, the Inspector-General considers that, where it is evident to an objections officer that the dispute cannot be resolved (that is, the officer is of the view that mediation or settlement are not appropriate in the circumstances), then there should be a fast-tracked mechanism to have the dispute proceed to litigation, which may be the most appropriate approach for the timely resolution of the dispute.

Greater emphasis on early resolution in the dispute resolution process

Stakeholder concerns

7.8 Some stakeholders state that there is nothing in the legislative framework specifically directed towards ensuring an early settlement or resolution of a dispute. They assert that for a dispute resolution system to work effectively, the opportunity for informal and negotiated settlements before and after the lodgement of an objection should be encouraged. There is a view amongst practitioners that early resolution will be assisted by ensuring that:

  • taxpayers are given sufficient information with the assessment to understand the basis upon which adjustments have been made;
  • objection is subject to a genuine independent review; and
  • within the constraints of excessive costs for taxpayers, the issues in dispute between the taxpayer and the Commissioner are identified as clearly as possible. This should be capable of being done administratively through better communication between the Commissioner and taxpayers or their representatives.

7.9 Stakeholders point to the widespread use of mediation in resolving commercial disputes. They submit that mediation may be similarly useful in resolving tax disputes, or at least in identifying and narrowing the contested issues, to save time and cost. They point to the fact that mediation is encouraged by the AAT and there have been many cases where tax disputes in the Tribunal have been resolved by mediation conducted by a registrar or a member of the Tribunal in a more informal setting. Practitioners also believe that greater emphasis on alternative dispute resolution processes in tax disputes provides both the Tax Office and the taxpayer with the opportunity to discuss non-legal issues that are unable to be raised in a formal litigation setting, but which may impede the effective communication of each party's respective positions.

7.10 Under the model litigant rules which applied from 1 March 2006, the Tax Office is obliged to endeavour avoiding, preventing and limiting the scope of legal proceedings wherever possible, including by the use of alternative dispute resolution processes.

7.11 Some practitioners are of the view that mediation, particularly where facts are in dispute, is an alternative approach to resolving disputes that is not used often in tax disputes, especially at the audit and objection stages. It is submitted that mediation or other alternative dispute resolution processes should take place at the earliest possible opportunity and that consideration should be given to the possibility of the Federal Court and the AAT ordering compulsory mediation of taxation matters if no reasonable and bona fide attempt has been made to settle a dispute.

7.12 In addition, practitioners submit that, were there to be a greater use of the alternative dispute resolution/mediation processes and where alternative dispute resolution processes/mediation are to be used, it is essential that the Tax Office representatives be vested with the requisite authority to settle or concede the matter.

Review findings and conclusions

7.13 The Inspector-General believes that taxpayers (and their advisers) and the Tax Office should be encouraged to take an interactive approach to resolving disputes. The objection stage provides an ideal point in the dispute resolution process to ensure that all avenues for alternative dispute resolution (mediation, settlement) have been explored and exhausted. There is significant scope for a shift in the administration of objections away from adversarial structures to arrangements that employ dialogue and mediation/arbitration.91

7.14 There may also be benefits to both the Tax Office and taxpayers in the implementation of a case conferencing process. Such a process — where the tax authority and the taxpayer meet to discuss controversial or disputed aspects of the taxpayers' affairs — has been implemented in New Zealand and is considered to have reduced the volume of litigation.


91 Review of Business Taxation, A Tax System Redesigned, July 1999, Recommendations 3.7 and 3.8.