There is a good chance that a private business owner or high net worth individual will be subject to a review or audit by the ATO at some point in their life.
When it does happen, the knee-jerk response for many accountants or advisers is to diligently supply the information requested by the ATO and commence a period of damage control. This state of play can go on for weeks or months with the occasional battle and a colossal exchange of information.
More often than not, a dispute slowly drifts into this rhythm where there is a lack of overall strategy.
And when this rhythm takes hold, it is very common for there to be:
(a) an unintentional oversharing of information by the taxpayer;
(b) a loss of focus by the ATO;
(c) increased paranoia by the ATO that ‘there’s more to it’;
(d) information ‘fishing expeditions’; and
(e) long periods of irrelevant enquiry.
Of course, an unnecessarily prolonged dispute usually results in higher professional fees and greater degree of emotional distress on the taxpayer. It can also cause irreparable damage to the relationship between the taxpayer and their adviser or accountant.
But, it doesn’t have to be this way.
You might be surprised to learn that early intervention by a legal expert can significantly reduce the overall cost and duration of a dispute and in turn limit the emotional toll.
How, you ask?
Allowing an expert to assist early on in a dispute often givens the client the ability to:
(a) formulate an appropriate strategy from the outset;
(b) conduct a thorough stocktake of the evidence;
(c) challenge unsupportable ATO contentions and limit the scope of their enquiry early;
(d) narrow the issues in dispute;
(e) limit the information required to be provided;
(f) prevent the ATO from stalling; and
(g) consider alternative dispute resolution processes.
From our standpoint, a well-managed dispute has common traits. These include:
(a) a well-crafted strategy;
(b) a sensible and professional approach to dealings with the ATO and its officers;
(c) a practical understanding of how the ATO manages disputes internally;
(d) a strong knowledge of the taxpayer’s rights and obligations;
(e) impeccable command of the relevant facts and the available evidence; and
(f) a consistent and accurate flow of information from the taxpayer.
Whilst these points might seem trite, the reality is that many of them are forgotten in the heat of battle!
Speaking from our own experience, we believe that the best outcomes we’ve secured for our clients have been on the back of thorough front-end planning and limitation of the ATO’s audit scope early on. In our opinion, this has significantly limited the damage to the taxpayer, and given the adviser or accountant the best chance of maintaining their client relationship.
In coming editions of The Inner Circle, we will bring you detailed practical insight into some of our tax dispute matters, and tips to manage a given scenario.