Different approaches in dealing with the ATO result in vastly different outcomes; doing it correctly usually resolves the matter in the taxpayer’s favour with significantly less work and therefore cost
With changing trustee penalties, excess contributions, auditor contravention reporting and ATO targeted reviews, the chances of dealing with the ATO in the SMSF sector is on the increase. We have found that there are common themes for effective interactions with the ATO. Done properly, this usually results in significantly less cost and requires less involvement from clients.
1. Interact early and make a good first impression
It is very important when confronted with correspondence from the ATO to not just ignore it and hope it will go away.
Instead, get on the front foot and formulate a concise, accurate, well thought out response to the issues the ATO has raised.
There can be a temptation to just give something back and hope it will go away, but this is your best opportunity to put your position and influence the ATO’s view.
It is also important at this stage to gather relevant evidence. It is extremely embarrassing and does a lot of harm if later evidence contradicts your stance, or your client is forced to change their position, so it is far preferable to assess things early. If there are things that need to be explained, explain them early before being caught in a contradiction.
2. Identify the relevant issues
While it is important to properly address what is before you, it is equally important to exclude things that are irrelevant and not go off on tangents.
Identify the key issues at play from the ATO correspondence, if necessary after consultation with ATO personnel, so you can aim your response at the issues at hand.
Volunteering too much information can be damaging, as can including things that are not relevant as it can hide or distort your key message.
3. Identify the precedent material the ATO will look at
The ATO has put out a wealth of material in many areas, particularly those that it is actively auditing.
Identify what the ATO will be using to make its decision – for example, public rulings, private binding rulings and ATO IDs. This will help you assess what the ATO considers relevant and where you should be focussing your attention.
Where the ATO lists relevant factors to be taken into account, ensure that it does so in making its decision. Hold the ATO to public statements it has made, and ensure they are being applied consistently with other taxpayers.
4. Consider voluntary disclosure
The ATO has outlined its policy about remitting penalties in various practice statements. One of the factors that works strongly in a taxpayer’s favour is to make a Voluntary Disclosure.
To be a ‘proper’ Voluntary Disclosure there is a limited window; miss it and it closes. We have seen the ATO quite tough on whether something is a Voluntary Disclosure and eligible for the penalty remission.
5. Match your response to the ATO precedent material
Having identified what the ATO will look at in making its decision, address your response at those factors. This will assist in the ATO dealing with your situation, and allow you to highlight your strengths.
1. Delay or ignore the ATO’s request for response
One of the worst things you can do is not deal with the ATO contact when it first happens.
Not responding to the ATO provides a very negative first impression, which can be difficult to overcome.
Being able to respond promptly with all the relevant information sets the scene for a well organised advisor who has considered the issues and dealt with them properly from the outset.
2. Provide a long-winded response
3. Think the ATO will be less harsh because there is hardship
The role of the ATO officer is to apply the law to the particular set of facts. If hardship is not a factor that can be taken into account under the law, then there is no point in arguing it.
It is relevant in some cases – for example, in deciding whether to make a fund non-complying or not. Otherwise, arguing your excess contributions’ tax assessment should not apply because it will cause hardship, does not assist as it is not a factor the ATO can take into account.
4. Just send on the client’s response without testing it
It is very important to ensure that all correspondence with the ATO is accurate. Unfortunately, many words have particular technical meanings or common use in the tax or super world which is different to the way an ordinary person would use it. It is therefore very important to ensure that a response provided by your client will be read in the way they intend.
This is not to say we should be taking the red pen to the things written by our clients as it is important that we are not misrepresenting what has occurred. However, where something a client says could be taken the wrong way by someone looking at it from a position in the ATO, or a member of the AAT or a judge later, it is important to ensure the client’s message is not lost because of a different understanding of the meaning in something that has been used.
Similarly, it is important to ensure that the client has put sufficient work into the response so that they have not, for example, inadvertently transposed dates. This can create confusion or the wrong impression with the ATO.
5. Ignore the ATO precedent material
I have talked earlier in the article about the importance of identifying what the ATO will be using in making its decision and tailoring the response to that.
Failure to do so runs the risk of your message being lost, missing relevant facts, or not expressing it in a way that can be clearly understood in the ATO.
Really, dealing in the correct way with the ATO is largely a matter of common sense. The key is to intervene early with a robust well thought through and researched response, backed up by appropriate evidence.
Scott Hay-Bartlem, partner, Cooper Grace Ward Lawyers
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