Changes to ATO’s dispute resolution process recommended but warning of “two-tier” system

The Inspector-General of Taxation has made 21 recommendations to the Australian Taxation Office on its use of early and alternative dispute resolution in a report published yesterday, but CPA Australia has warned small business is missing out in a two-tier system.

Federal Assistant Treasurer David Bradbury released the report to general approval from the ATO, which agreed with 20 of the 21 recommendations either fully, in principle, or in part.

The recommendations are aimed at ensuring the ATO and the taxpayer engage earlier to ascertain and agree on those matters that are agreed and those that remain in contention, streamlining the information exchange between the parties to ensure that the matters in dispute are understood and ensuring clear escalation channels to appropriate ATO personnel to engage in dispute resolution processes.

The Federal Government also backed the report, with Bradbury praising the ATO’s work on alternative dispute resolution.

“The ATO has already embarked on a significant program of work to encourage the use of ADR [alternative dispute resolution] and I encourage the ATO to continue its work in this area,” said Bradbury.

Paul Drum, CPA Australia head of business and investment policy, told SmartCompany the “vigorous agreement” between the tax office and the Inspector-General about how the alternative dispute resolution process should work was encouraging.

“We have had quite positive feedback from members about how it has worked to date. This is really about fine tuning rather than major changes,” says Drum.

However, Drum says there is concern the alternative dispute resolution program is not as useful for smaller taxpayers short on time.

“We talk about a two-speed economy and is this an example of where the system is actually two tiered? Those who can afford to use it get maximum benefit,” says Drum.

“For smaller organisations, it is still no silver bullet for them, as they are just unable to use it.”

Drum says smaller businesses often do not know the alternative dispute resolution system is an option or do not use it early enough.

“In many ways, the ball is in the court of the taxpayer to know that it exists and so to avoid ending up in the AAT or the courts,” says Drum.

“It is about business understanding it a bit better and knowing that it is there.”

Drum also says having the right arbiter for alternative dispute resolution was important.

“What we have learnt about alternative dispute resolution at a state level is that it is very important to have the right arbiter… who is across the issues and decisions-makers across the room,” he says.

The 21^st recommendation in the report calls for the government to amend the tax laws to give the Taxation Commissioner the power to extend the objection period, at the taxpayer’s request, before the expiry of this period for the purpose of engaging in alternative dispute resolution processes.

The CPA backs the recommendation and Drum says extending the current 60-day period of objection for taxpayers “is really worth exploring”.

Bradbury says the government will give “detailed consideration” to this recommendation, but as the objection system forms a key element of the self-assessment regime, it will wait to do so once it receives the Inspector-General’s report on the self-assessment system.