Taxes are the so-called lifeblood of the government. The government needs to collect taxes to continue to provide the services that they are obliged to give to their constituents. Taxes then are necessary business expenses. In most jurisdictions in the world, taxes are overhead expenses that must be paid otherwise the business cannot operate. The inability of a business to pay taxes as they come due is also an indicator that your company is low on cash and could likely be insolvent.
In July 2018, the Australian Tax Office launched a pilot program giving review services for small businesses disputing income tax audits. The goal of the program is to give an early and fair resolution of disputes against tax audits for small businesses.
The ATO announced in early April 2020 that it will extend pilot program until December of this year. The extension is due to the number of positive responses from small businesses who have availed of the services.
Tax Audit Review Services
The independent review service includes disputes on the following:
- income tax
- goods and services tax (GST)
- Excise
- luxury car tax (LCT)
- wine equalisation tax (WET)
- fuel tax credits (FTC)
Two-Step Tax Audit Review Program
The program is composed of two steps:
Step 1: Position paper review. In this step, an audit team will review the ATO’s audit of a small business’s taxes. The program gives the small business a chance to respond to this review.
Step 2: Independent review. In this step, an independent technical officer will consider the small business’s response and points of disagreement. The technical officer will then make a recommendation for the appropriate outcome. The small business can participate throughout the whole independent review process. The small business can introduce new facts, evidence, and arguments not raised during the tax audits. The independent review but it can last about 45 days from the filing of an independent review request. The ATO will make changes to its audit based on the recommendation of the independent technical officer.
A case officer will contact eligible small businesses with tax audits in progress before issuing assessments. After this, the ATO will offer the businesses the opportunity to participate in the extended pilot.
According to ATO deputy commissioner Scott Treatt, small businesses can expect an independent officer from outside its audit area to review the facts and technical merits of the ATO’s audit position.
Omitted Cash Income: Common in Tax Audit Issues
Omitted cash income, usually due to inadequate record keeping, is one of the most common issues that small businesses have asked for a review into. Other issues also include administrative penalties, deductibility of business expenses, and characterisation of payments to related individuals.
The ATO said it won’t consider disputes over superannuation, fringe benefits tax, fraud and evasion findings, and interest by the independent review service at this stage.
“Pleasingly, we’ve only received two objections from businesses that have been through our independent review pilot since it launched on 1 July 2018. This result demonstrates that our pilot program is working as intended for small business in that it’s helping to resolve disputes before matters reaching objection.”
Scott Treatt, ATO deputy commissioner
More details on the review process, including how to request an independent review, who are eligible in the pilot program, and when the independent review is not available can be found at the ATO’s website
Right to Object to Tax Audits Remain
The ATO noted that not all small businesses will be eligible for an independent review. Nevertheless, this ineligibility does not deprive them of the right to dispute and object to the ATO’s audit. Other dispute options include objecting to any amended assessments and notices. ATO’s Review and Dispute Resolution will deal with the objections. The ATO also has an in-house facilitation service that assists businesses in resolving their disputes.
As an alternative to the independent review, ATO also suggested raising concerns with the Inspector General of Taxation. The Inspector General has the authority to look into administrative actions taken by the ATO or the Tax Practitioners Board. The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) can also assist and provide general information on how to resolve a dispute and can facilitate discussions between business and the ATO. In addition, the ASBFEO can provide access to external alternative dispute resolution (ADR) services or refer you to another Commonwealth, state or territory agency who can more appropriately deal with the matter.
Photo by Kelly Sikkema on Unsplash
Liam White joined the Slater Byrne Recoveries team in early 2013. He has worked across the credit & dispute resolution industry for a number of years. He is currently working in a Marketing/Head of Sales capacity at Slater Byrne Recoveries.