Law

Tax Litigation and the Administrative Appeals Tribunal

In a talk on 11th October 2019 given by the Deputy President (DP McCabe) of the Administrative Appeals Tribunal (AAT) at Sydney University, he spoke about the AAT dispute management. Referring to the AUSLII, CTH legislation, Tax Admin Act 1953.

In the 1970s the Commonwealth instituted a number of reforms. One reform was to simplify judicial review, another was to introduce an Ombudsman and a third was to create the AAT. In the 1980s this were followed by the introduction of the Freedom of Information Act. The AAT Act was introduced by the Whitlam Government it had and were a bipartisan decision that introduced this admin decision review Act.

The AAT was set up to be like a court, with a judicial review process. Where the decision maker was represented to play a positive role in the process of genuine review.

Arguments that are made to the AAT in tax appeals are things like “gold is the only currency”, “tax is unconstitutional”, and that “the king said the ITAA is invalid” all these can not be taken as acceptable reasons to appeal.

There is room for a reviewable decision process, to look at all the facts before the decision, all the material comes to the AAT but you can always add more to make the decision at the AAT a fresh decision making process.

The AAT have all the same powers and are subject to all the same limitations. The AAT are also open to ADR (Alternative dispute resolution) opportunities, which is a variety of techniques designed to resolve conflicts without taking legal action. This can be a constructive approach (especially at dispute and review stage).

Some statistics: there were 25,000 objections from the 36,352,123 returns between 2017-18, which went down as the number of returns are going up, this indicates more useful discussions. As less are ending up in court, with 102 court decisions. Even though, tax law is becoming more complex these statistics look good.

The complexity increases for the lodging in the tax and chimerical division are: 938 applications, 485 total matters, 683 total applications for review of decisions, 348 total matters. 87.50% of cases are resolved without a hearing. As cases that settle by agreement are increasing. 

Popular cases which are brought up are input tax credit claims, such as the GST on gold example where selling taxable gold to a scrapper, and the supplier disappears without paying GST, while the refiner files for tax credit, and the outcome becomes GST free purchased gold bars. These cases are called carousel fraud. Another popular case are within the software development and research and development activities, with unreported income.

The AAT is in competition with the Federal Court, and said to be conducted more efficiently, as costs are less to run, filling fees are lower, easier process to file, no cost jurisdiction, and if you loose the case you only have to pay the filling fee. Said to be better and more flexible ADR options, conferencing process where individual members can undertake ADFR activities, with experienced litigators, conciliation ABR, case appraisals, neutral evaluations, and co-conciliation. Finding that ADR options are not helpful to be used in the end of the process, learning about the case at an early stage such as in neutral evaluations, can craft the legal outcomes and bring focus to the proceedings by getting legal to talk to the client beforehand. They are binary questions of law, the process is that the law is applied to the facts the same, penalty decisions have the discretion exercised by the AAT which results in split decisions between the Federal court and the AAT. Hearings in the AAT can be held in private, contents and transcripts can also be kept private.

Which division are you going to file against? Is it a small business tax division for small business taxpayers. We can give them a fair go. With lower filling fee around $500 from the original fee of $1,000. With tailored case management. Extra ABR options. Quick turnaround on decisions, 30 days after case. A variation of representation. For cases with individuals who are not carrying on a business, but have assets on personal returns, they usually come into court as a group.

Courts can appoint specialists and assistants, when they don’t have these, e.g. in the Taronga zoo case the court had no vets to comment advise on the technical matters. Here you can use reports by specialists.

Accountants are useful for calculating complex finances, such as dividends. Therefore, it is useful to talk to a client through the record keeping in their jargon. However, a third of taxpayers when represented by their tax agents can cause a conflict of issue, as it is them who get them in trouble in the first place, e.g. claiming deductions that they are not entitled to. Also, tax agents may not have the proper training to represent. They must act in good faith and have authority to settle.

Section 328-110 of the 1997 Act “small business entity” has a turnover less than 10 million. Here the Commissioners’ outside lawyers and counsel may pay for all legal fees. When a small business files an application for review, we recently started arranging a conference with the taxpayer to get more background information, to get an early identification of the issues. If the taxpayer is clear on their issue then they can better engage with the Commissioner. Here an early assessment process is being implemented. This can allow for an engagement of the taxpayer to send correspondence with their facts and argument.

The number one discussion point, is to clarify via phone or in person, and to agree on a set timetable, up until a hearing. Who is on first, the commissioner or taxpayer there is no fixed rule. It is most likely the applicant. Unless, the ordinal decision changes by the Commission. You must think about the time frame for evidence you have to acquire and the witness cooperation or the summoning of documents. Go and collect evidence first, such as invoices. Then show to commissioner to see if still an issue. You do not want to prolong the case.

A statement of facts can be a very important document. To identify a question you need answered to resolve the case. You must zero in and don’t obscure your vision/discussion. Use simple language. Good advice is making complex case simple in understanding. Be able to agree that such has occurred.

Section 35 is confidentiality, where the witnesses can be prevented from admitting to crime, through using an immunity certificate. The AAT can fashion this, AATA 398, We shouldn’t be able to do this though as the commissioner cant know things for one thing and not another, unless there are circumstances in witnesses not being good on the stand. Excluding/suppressing evidence may compromise civil liberties.

Section 33 rules of evidence do not bind us, but are a good guide, as they are a condition of rules, so not inadmissible in court. Hearsay evidence is not inadmissible, but it carries limited weight. In court you must be alert to a client or witness blurting out things in court, and it is never to late to settle. In courts, the best liar seen through reasoning can be Peter Foster, you can tell a liar in court through the inconsistencies in their story.

When we put a taxpayer on stand we can put them under oath, so there is no need for further evidence, as it is sufficient in the detail of the whole story. However, then they are subject to cross examination. You shouldn’t object so much, as the court does not like to exclude so much. An appropriate examination will apply. By reducing the evidence to rely upon, the Commissioner only has guess work. You must provide a better explanation, what is the better tax figure and why? You have an obligation to affirmatively establish what evidence should be. Some cases can be successful if you establish a lower figure and better weight of evidence. How likely is the taxpayer’s story? If it sounds reasonable to the judge. Is there more going on? It is always worth still doing for the penalty. However, penalty can go up, during a hearing which you have to inform the client of.

Don’t be afraid to use a view, for example you can go and see the clients business, e.g. business/house premises to see if there is a split of use between personal and business, remote witnesses with a DVO problem.

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