Please, Sir, I want some more information

Surviving an ATO audit: Part Four

When you’re too close to something it’s often hard to look at it objectively, and it’s not until you break away that you see things more clearly.

Since leaving the ATO last year I’ve had a few insights into the tax office from the other side of the desk.


For example, I have recently found that many decisions made by the ATO lack communication of the detailed reasoning behind them.

When the decision is not enough

The majority of clients won’t oppose the ATO on an unfavourable outcome where sound reasoning has been provided. Where there is a lack of reasoning, or such reasoning is not sound, however, clients ought to challenge the ATO for a better understanding of the reasons behind the decision.

This becomes particularly important where a client wishes to oppose the decisions made. Without sufficient detail to respond to, you must cover all possible arguments, increasing the time and cost burdens. Pushing the ATO for further detail allows you to pin point the area/s of discrepancy and argue more purposefully.

Taking on the ATO

Below are some examples of real situations where challenging the ATO for more information could benefit your clients.

Scenario 1

The ATO requests for your client to clarify how they treated certain profits in their tax return. The client’s treatment was as a capital gain. The ATO issues amended assessments treating the profits as income based on a code selected by the payer (the client being the receiver) with the reasoning stating simply ‘adjusted as a result of audit or investigation’ and minor reference to a taxation ruling, but little detail.

Requesting further detail regarding this reasoning reduces the cost burden of addressing the entirety of the taxation ruling referenced.

Scenario 2

A client is being audited under the residency rules. The ATO simply advises that the client is considered an Australian resident in accordance with Taxation Ruling (TR) 98/17 and Income Tax Ruling IT 2650, but does not point out how the client fails either ruling.

Questioning the ATO about the exact areas of the two rulings it considers the client to have failed allows you to more successfully argue non-residency.

Scenario 3

The client obtains a private ruling about whether a payment can be concessionally taxed. Simply put, three conditions needed to be satisfied; however, the Commissioner had discretion to treat one particular condition as being satisfied, even if it is not.

Three quarters of the private ruling set out that two conditions are satisfied. The remaining quarter sets out that the final condition is not satisfied; however, this is the particular condition where the Commissioner can exercise his discretion. There is no detail setting out why the Commissioner did not exercise his discretion.

Objecting this ruling and addressing all of the factors the Commissioner must consider to exercise their discretion is a timely exercise. The cost burden can be reduced if the ATO addresses which, if any, of the factors the client fails to satisfy.

If you would like any assistance in dealing with the ATO, please phone Trung Vu on 07 3223 6100 or email TrungV@redchip.com.au.