Taking on the tax office is tough at the best of times, but when the taxman’s tactics include running multiple cases against an individual and related company, the costs can escalate quickly. ROBERT RICHARDS looks at how one taxpayer managed to cut his le
By Robert Richards
Taking on the tax office is tough at the best of times, but when the taxman’s tactics include running multiple cases against an individual and related company, the costs can escalate quickly.
Fighting the taxman can be hard. A starting point is the burden of proof. The tax office can raise an assessment and then pass the burden of proving that it is incorrect on to the taxpayer.
What is worse is the inequality of resources. Taxpayers are subject to both monetary budgets and time constraints.
On the other hand, it appears that once the tax office decides that a matter is to be litigated, it will invest whatever time and money is required to win the matter.
All of that could be accepted if the tax office were to litigate fairly. Sometimes it does not, and before any member of the tax office protests, I should stress that this is uncommon and not a criticism of the tax office generally.
The tax office is supposed to be a “model litigant”, since the attorney general has directed this in his model litigant guidelines. However, sometimes the tax office will not be such a model litigant.
The decision in Paper to Paper International and Holland v Federal Commissioner of Taxation (Administrative Appeals Tribunal, 19 September 2008) is an example of where the taxpayers sought to minimise their costs of fighting the tax office. And by way of disclosure, I acted for the taxpayers.
The facts were simple. The tax office increased the assessable income of a taxpayer (which was a company) and levied penalties on the company as a consequence of that understatement of income.
At the same time, it assessed Holland (who was a director and shareholder of the company) as liable for tax on part of those understatements of income made by the company, and assessed penalties on him.
Both the company and Holland lodged objections (on the same day) against the assessments and the penalties. Up until then, the dispute involving the company and Holland had run in parallel. But for some reason the tax office only determined the objections lodged by the company.
For cost efficiency purposes, the company and Holland wanted matters to continue to be joined together. So Holland made a number of applications to the tax office pursuant to section 14ZYA of the Taxation Administration Act 1953. This section allows a taxpayer, where 60 days has elapsed since the lodgement of an objection, to give notice to the tax office requiring it to determine the objection.
The tax office ignored that request and was deemed to have disallowed those objections lodged by Holland, which allowed him to refer the decisions to the tribunal.
The company and Holland then sought to have the disputes heard together. The tax office refused, so the taxpayers sought directions from the tribunal that they be heard together.
In seeking such directions, the taxpayers relied on section 2A of the Administrative Appeals Tribunal Act, which requires the tribunal to adopt procedures that are “fair, just, economical, informal and quick”, and they also relied on the fact that part of the Attorney General’s model litigant guidelines states that the Commonwealth must minimise the costs of litigation.
The tribunal made the directions sought by the company and Holland. It noted “the greater efficiency of hearing the matters together and, notably, being able to cross-examine on all related issues at the same time”.
The decision might not seem very important. However, what it does do is serve as a valued reminder to the tax office of the purpose of the tribunal and the importance of the model litigant guidelines.
Robert Richards CPA is a solicitor specialising in tax matters.
This article first appeared in CPA Australia’s magazine, INTHEBLACK.