How to dispute a decision by the tax office

So, you've been audited by the ATO and they have found discrepancies.

The ATO has issued you with an amended assessment demanding payment of the shortfall of tax that they believe arises based on the difference between what the ATO thinks you owe and the tax that you have actually paid. But you think the ATO has got it wrong.

What is the process for disputing the ATO's decision?

How to object to an ATO assessment

Well, first of all, you can lodge an objection against the assessment.

This needs to be submitted on the approved form (Complete and lodge your objection | Australian Taxation Office).

This needs to be done within two years of service of the notice of assessment or decision for most individuals and small business taxpayers, or within four years of service of the notice of assessment or decision for taxpayers with more complex tax affairs.

If out of time, you can apply for an extension of time to lodge an objection.

The ATO will consider the information provided in the objection (which needs to be done by a different area of the ATO to the original audit decision, to maintain independence) and will provide its view on the objection in due course.

What happens if you still disagree 

Once notice of the ATO's decision on the objection is served on you, you must, if you are still dissatisfied with the ATO's decision on the objection, decide what to do next.

You might simply accept the Commissioner's decision, or you might seek further review by the Administrative Review Tribunal (ART - an administrative review) or appeal to the Federal Court (a judicial review).

Application to the ART or appeal to the Federal Court must generally be lodged within 60 days of service of the notice of the ATO's objection decision.

The objection decision, and the reasons for that decision, will usually be provided to you in writing.

If you didn't receive a written decision or you're not satisfied with the reasons, you should contact the relevant ATO case officer.

At the ART or Federal court, you will:

• be expected to prove your claims with evidence in a tribunal or court review
• need to prove the decision should not have been made or should have been made differently
• need to show what you believe the correct assessment should be.

The ART is an independent body that can conduct a merits review of certain decisions that the ATO makes. For example, they may confirm the ATO's decision, vary it, set it aside, or make a new decision.

When you apply for a review, you:

• are limited to the grounds stated in the taxation objection to which the decision relates, unless the ART orders otherwise
• will be expected to prove your claims with evidence. If the decision you're seeking a review on is
  • an assessment, you'll need to prove that the assessment is excessive or incorrect, and what it should have been
  • for anything else, you'll need to prove that the decision shouldn't have been made or should've been made differently.

Before you go to the ART, you can also reach out to the Australian Small Business and Family Enterprise Ombudsman's Tax Concierge Service (The Tax Concierge Service | ASBFEO) to help you navigate the ART process.

What happens if you're dissatisfied with ART

If you are still dissatisfied with the decision of the ART, you can, if you intend to continue pursuing your rights, appeal to a single judge of the Federal Court, but only on a question of law. The appeal must generally be lodged within 28 days.

If you are dissatisfied with a decision of a single judge of the Federal Court, you have the option to appeal to the Full Federal Court, and the appeal must generally be lodged within 21 days.

An appeal against the decision of the Full Federal Court may be taken to the High Court, but only if the High Court grants special leave to appeal.

ART hearings are seen as better for simple legal issues, issues of fact and issues requiring review of the Commissioner's discretion, whereas Federal Court hearings are seen as better for complex legal issues.

If there is a small amount at issue, it can be preferable to appeal to the ART to avoid the higher costs associated with an appeal to the Federal Court.

Reported AAT decisions are edited to preserve anonymity, whereas public court hearings carry the risk of your identity being revealed.

Representation by a lawyer or accountant is not required before the ART (but is emphatically recommended!) and you can appear personally, whereas formal legal representation is generally required before the court, with a resultant increase in costs.

Remember, whether you choose the ART path or the Federal Court path, you need to be mindful of the following.

1. The grounds of your argument are limited to the grounds stated in the objection, unless the AAT or Federal Court allows otherwise. The AAT and Federal Court have a broad discretion to permit the grounds of objection to be amended, and could permit significant changes, such as to add a completely new issue not stated in the original objection. But you do not have an automatic right to an order to amend the grounds.
2. You bear the burden of proving not only that the amount of the assessment is incorrect but what the actual taxable income should be. You must prove on the balance of probabilities that the assessment is excessive in the sense of exceeding the amount of your true liability, and what the correct assessment should be. The ATO does not bear any onus to positively prove its case.

Get stories like this in our newsletters.