In brief

The Australian Taxation Office (ATO) has released its 2014-15 Annual Report, which demonstrates the strategic shift to early engagement strategies and dispute resolution has succeeded, positioning the ATO for an increased focus on compliance activities in 2016.

In detail

The ATO’s recently released Annual Report is a report to Government on the ATO’s general organisation, administration and performance for the 2014-15 year, and provides detailed information regarding the ATO’s compliance activities and dispute resolution strategies for the previous financial year.

The ATO more than doubled the number of disputes that were settled during the 2014-15 year. Over 1,000 cases were settled, compared to approximately 390 in the 2013-14 year; 84 per cent of the settled cases were settled pre-litigation, compared to 77 per cent in 2013-14.

There has been a significant increase in the settlement of disputes with large businesses with settlement cases increasing to 81 from 34 in the prior year. The aggregate pre-settlement shortfall tax on these 81 cases was $5.6 billion, with the agreed settled total sum being $2.9 billion, resulting in a reduction of $2.7 billion.

In litigation cases, the Commissioner agreed to settle 80 per cent of all applications lodged before hearing. This shows a marked trend for the Commissioner to be more selective in the nature of the disputes that it wishes to pursue into litigation. The ATO’s strategic approach to litigation has decreased its legal expenditure from over $100.5 million in 2013-14 to approximately $81 million in 2014-15, a reduction of approximately $19.5 million.

The Annual Report suggests that resources freed up as a result of the reduction in disputes have been (and will continue to be) redeployed to increase the number of reviews, audits and other early engagement strategies. During 2014-15:

  • across all businesses, the ATO conducted over 26,000 reviews
  • approximately 453,000 tax adjustments were made as a result of audits
  • the ATO participated in 156 alternative dispute resolution processes completed in the year, and
  • in particular, the ATO undertook approximately 50 audits and 520 reviews of large businesses.

These audits and reviews resulted in approximately $2.5 billion of liabilities raised and $1.6 billion of cash collected.

The ATO is increasingly engaging with taxpayers before tax returns are lodged. In the large market this is through pre-lodgement compliance reviews, while in the individual taxpayer market it is through pre- lodgement reminders and pre-populated tax returns.

The ATO has also increased its use of formal information gathering powers, to ensure that compliance cases are not unnecessarily delayed. During 2014-15, the ATO issued over 10,000 formal notices including production notices, notice to attend and give evidence and formal offshore requests, which is a 25 per cent increase on the notices issued in the prior year.

The takeaway

With an increased ATO focus on early dispute resolution, taxpayers that have disputes should consider all resolution strategies available to obtain an efficient and timely closure of their tax disputes.

We anticipate that the ATO will continue to sharpen its focus on compliance activities through the increased use of data analytics and will continue to use formal notices to gather facts to ensure cases progress quickly.