Small Business Taxation Disputes Division

Small Business Taxation Disputes Division

It is pleasing to see that the Australian government has made changes to the approach to small business taxation disputes with the Australian Taxation Office.

The way the Australian taxation system works regarding disputes with the Australian Taxation Office (ATO) has been on a pay now fight later basis and even if there is current legal litigation occurring with the ATO, the Taxation Office’s position was that the debts still have to be paid even though the dispute is ongoing.

This situation, of having to pay the ATO and then having to fund a legal battle against the ATO is never pleasant and the payment to the ATO and funding of the legal and accounting expenses can prevent a taxpayer from being able to adequately mount a defence and continue trading in business.

A recent initiative of the Australian government was the creation of a special division within the Administrative Appeals Tribunal (AAT) that deals specifically with small business taxation matters known as the “Small Business Taxation Division”. The major benefit to small business operators of this initiative is that only taxation matters will be dealt with in the special division of the AAT.

It is also welcome news that the Australian Small Business and Family Enterprise Ombudsman’s office will provide the unrepresented small business taxpayer with some free and discounted legal advice and a dedicated case manager throughout the process with the Administrative Appeals Tribunal.

A dispute resolution instruction bulletin has been issued by the ATO which summarises the ATO policy and principles on conducting litigation in the Small Business Taxation Division of the AAT. The key commentary in this bulletin is that the ATO “will not enforce recovery of the tax debt in dispute before the Small Business Taxation Division – other than in exceptional circumstances”.

Many small businesses, subject to an adverse finding from the ATO, do not have the funds to pay the alleged debt and pay for accounting and legal advice to fight the finding by the ATO which is why this change, implemented by the Australian government, will make a difference to small business operators who have a disagreement with the ATO, as long as the taxpayer has an aggregated turnover of less than $10 million per annum.

At a recent convention of the Taxation Institute of Australia, the Commissioner for Taxation in a speech mentioned that “small business taxpayers had the highest percentage “tax gap” across all the ATO taxpayers’ segments.”

The tax gap is the ATO’s attempt to calculate the difference between the “theoretical level of tax paid” and the “actual level of tax paid”.

In his speech the Commissioner of Taxation identified that the ATO is of the belief that small business taxpayers are paying less income tax than they should.

The consequences of this statement will probably mean that the level of tax audits for small business taxpayers is likely to increase and the number of disputes with the ATO in the future is likely to increase.

Small business taxpayers, caught up in these types of disputes, will have reason to be appreciative that the government has created the special division within the AAT to decide on small business taxation disputes.

If you have any questions concerning the policies of the ATO relative to disputes on taxation matters, please do not hesitate to contact us.