‘A sign of the times’: ATO audit outcome letter reflects more assertive regulator, lawyer says

The ATO’s website said it would advise in writing of its audit outcome and finalisations, usually within seven days of making the decision, noting that it would offer a final interview to discuss penalties and interest charges if not included in the final position paper.

“If we have concluded that penalties and interest charges should apply, we will tell you our reason and give you the opportunity to make a submission for reduction or remission of interest and penalties [sic] charges,” the website reads.

In a statement provided to Accountants Daily, the Tax Office said: "An ATO audit is a formal review conducted by the ATO to verify that individuals and businesses are meeting their tax obligations. The audit process aims to ensure that the information reported in tax returns is accurate and compliant with Australian tax laws. Audits can vary in complexity, from routine checks to more intensive investigations that may last several months."

Speaking with the brand, HWL Ebsworth Lawyers partner Vincent Licciardi (pictured) said that the way that the “Outcome of our audit on your clients’ tax returns” letter is written “feels very strong”. 

“I hadn't seen such an overt letter from the ATO before, like directly saying to the accountant or to the tax agent that the matter would be referred to the board … And naturally, if you put yourself in the tax agent’s shoes, it can be quite confronting,” Licciardi told the brand.

Impacts of this audit outcome

Licciardi said that this letter is in the backdrop of the ATO taking more assertive action with stronger escalation. 

“To the positions that are being adopted … they tend to be more assertive positions, higher form of penalties, less inclination to give GIC remissions.”

He noted that when faced with smaller claims, accountants or clients may assume the ATO sees them as not worth pursuing because of their lower value.

“What tends to happen is those adjustments are then made by the ATO without any thorough explanation by the adviser or by the client … That then comes back reflecting on the behaviour of the adviser.”

Licciardi urged that tax agents accept the position of the Tax Office, and explain the position that was adopted upon lodgment. 

“Whether it was a BAS, FBT or income tax return – why was that reasonable and justified at the time?

“Even if it feels the amounts are small, they should definitely be going back to the ATO, and say, ‘No, we don't agree with A, B and C for whatever reasons'.”

He warned that if tax agents fail to put forward their position, they risk accepting the position in isolation, with the implication of referral of their practice to the TPB hanging in the balance. 

“That looks like you just conceding under the ATO’s review or the audit, effectively accepting that they've got you.

“That's where, in my experience, this becomes very problematic. Because, once it goes to the board, that position is just accepted as fact, even if you had quite a legitimate basis to explain to the ATO, ‘No, we did X and Y when we lodged, because we thought it was quite reasonable’, that's not how it's perceived once you concede the case.

“Even if they don't accept it and the amount is small, you should put their position to them as to what was reasonable and justify at the time.”

More assertive regulator

While the letter is confronting, Licciardi said that it reflects a more assertive posture from the Tax Office and the TPB following the COVID-19 pandemic.

Licciardi said this follows support provided by the ATO to small businesses during the global financial crisis (GFC) and the pandemic, which is now being reversed.

“They [were] able to mobilise and support the community in an unbelievable way very quickly. We saw that during the GFC, and then again during COVID. And so they're able to help effectively entire economies very, very quickly, and it's very impressive.

“Now, To bring some normality back to the system, it's having to go very strongly in the opposite direction. I do think it will normalise in due course, but at the moment, certainly we're all feeling it.

“The flip side, though, what ends up happening, is in my observation, is that then, the pendulum seems to swing disproportionately in the opposite direction.”

Licciardi said this was a “sign of the times”. 

“It's something that probably most tax practitioners have been feeling for maybe two to three years, perhaps slightly longer.”