An ATO amended assessment can turn a tax issue into a serious financial problem very quickly.
The Australian Taxation Office may revisit an earlier assessment and change the amount of tax it says is payable. Sometimes the additional liability is significant. Penalties and interest may also be involved.
But receiving an ATO amended assessment does not necessarily mean the ATO has the final word.
The real questions are:
Why has the ATO changed the assessment? Is its interpretation of the facts and law correct? What evidence supports the taxpayer’s position? And how long does the taxpayer have to challenge the decision?
Those questions matter because objection periods can apply and, importantly, disputing an assessment does not necessarily make the associated tax debt disappear while the dispute is being resolved.
For a taxpayer, solicitor or accountant confronted with an amended assessment, understanding the ATO’s reasoning should therefore be one of the first priorities.
What Is an ATO Amended Assessment?
An amended assessment is issued when the ATO changes an assessment that has previously been made.
An amendment may change taxable income, deductions, offsets or other components used to calculate the taxpayer’s liability.
The result may be an increase or decrease in tax payable.
Where the amendment increases the liability, however, the consequences can extend beyond the additional primary tax. Depending on the circumstances, penalties and interest charges may also become relevant.
That is why simply looking at the new amount payable tells only part of the story.
The more important issue is often what factual or legal conclusion caused the ATO to change the original assessment.
Why Would the ATO Go Back and Change an Assessment?
There is no single reason.
An amended assessment may follow an audit or review, information obtained by the ATO, a disagreement about the tax treatment of a transaction, or a different interpretation of the facts or taxation legislation.
Depending on the circumstances, an amendment might concern:
- income that the ATO considers should have been declared;
- deductions that have been denied or reduced;
- capital gains tax;
- business or investment transactions;
- company loans, payments or benefits involving shareholders or associates;
- Division 7A;
- trust distributions;
- taxation residency;
- international or cross-border transactions; or
- the legal characterisation of a transaction or arrangement.
Sometimes the disagreement is principally about what happened.
In other cases, the taxpayer and the ATO may substantially agree on the facts but disagree about what those facts mean under Australian taxation law.
That distinction can become extremely important when deciding how to respond.
Where the amendment forms part of a broader dispute with the Commissioner, further information is available on Chris Garlick’s ATO tax disputes, audits and objections page.
Don’t Just Look at the Amount Owing
When an amended assessment lands, the natural reaction is to look immediately at the bottom line.
How much does the ATO say I now owe?
That number matters, but it should not be the end of the analysis.
Where the amendment follows an audit or review, there may be correspondence, information requests, audit findings, position papers or reasons explaining how the ATO reached its conclusion.
Before deciding what to do next, it can be useful to ask:
- What exactly has the ATO changed?
- What facts has the ATO relied upon?
- Are any of those factual assumptions wrong?
- Is the disagreement really about the interpretation of taxation law?
- What documents support the taxpayer’s position?
- Are important documents or records missing?
- Have penalties or interest also been imposed?
- What is the deadline for challenging the decision?
An effective response starts with understanding the case the taxpayer actually has to answer.
Can You Object to an ATO Amended Assessment?
In many circumstances, yes.
Australia’s taxation objection process provides a formal mechanism for challenging objectionable ATO decisions, including relevant amended assessments.
An objection is not simply a letter saying:
“I disagree.”
The objection needs to identify the decision being challenged and set out the grounds upon which the taxpayer says the decision is incorrect.
The evidence supporting those grounds may be equally important.
Depending on the nature of the dispute, relevant material could include:
- contracts and agreements;
- company records;
- trust deeds and resolutions;
- bank records;
- accounting records;
- correspondence;
- valuations;
- transaction documents;
- tax returns and financial statements; and
- professional advice or other contemporaneous records.
The applicable legislation, taxation rulings and authorities may also need to be considered.
The ATO provides information about objecting to an ATO decision, including the formal objection process and applicable requirements.
How Long Do You Have to Object?
This is not a deadline to guess.
The applicable objection period depends on the type of decision and the taxpayer’s circumstances.
For amended income tax assessments, the objection period generally reflects the objection period applying to the original assessment.
Where the standard two-year amendment period applies, an objection against an amended assessment generally needs to be lodged by the later of:
- two years after notice of the original assessment was given; or
- 60 days after notice of the amended assessment was given.
For other taxpayers to whom the four-year period applies, the corresponding period is generally the later of:
- four years after notice of the original assessment was given; or
- 60 days after notice of the amended assessment was given.
There are qualifications and different rules for particular taxation decisions.
If the ordinary objection period has expired, it may still be possible to lodge an objection together with a request that it be treated as having been lodged within time.
But relying on a late objection request is very different from protecting the taxpayer’s position before the original deadline expires.
The deadline applicable to the particular assessment should therefore be checked as soon as the amended assessment is received.
Do You Still Have to Pay the Tax If You Object?
This is one of the most important practical issues.
Lodging an objection does not, by itself, make the assessed debt disappear or automatically postpone the payment due date.
That means two issues may need attention at the same time:
1. Is the amended assessment legally and factually correct?
and
2. How should the resulting tax debt be managed while that dispute is being resolved?
Interest may continue to accrue on unpaid amounts.
Depending on the circumstances, the ATO may also consider arrangements concerning a disputed debt.
The key point is that a taxpayer should not assume:
“I have objected, so I don’t need to worry about the debt until the objection is decided.”
The substantive dispute and the management of the resulting liability may require separate consideration.
Evidence Can Make or Break a Tax Dispute
An amended assessment may concern events that occurred several years earlier.
By the time the dispute crystallises, memories may have faded, employees or advisers may have moved on, businesses may have changed and documents may be harder to locate.
Contemporaneous evidence can therefore become crucial.
Contracts, emails, resolutions, accounting records, bank records, valuations and documents created when a transaction occurred may provide a much stronger evidentiary foundation than attempting to reconstruct events years later.
This is one reason early analysis can be valuable.
Before formal objection grounds are settled, the evidence should be tested against the position being advanced.
That process may identify strengths in the taxpayer’s case.
It may also expose weaknesses or evidentiary gaps that need to be addressed before the dispute progresses.
What Happens After the ATO Decides the Objection?
The Commissioner considers the objection and makes an objection decision.
The taxpayer’s position may be accepted, accepted in part or rejected.
If the taxpayer remains dissatisfied with the objection decision, further rights of review or appeal may be available.
Depending on the particular taxation decision, that may include proceedings before the Administrative Review Tribunal or the Federal Court of Australia.
Strict time limits can apply to those next steps.
This is why a substantial objection should not always be treated as an isolated piece of correspondence with the ATO.
If the dispute may ultimately proceed to external review or litigation, decisions about the issues, evidence and legal arguments made during the objection stage can assume considerably greater importance.
When Does an Amended Assessment Become a Serious Tax Dispute?
Not every amended assessment requires litigation.
Some disputes can be resolved by correcting factual misunderstandings, providing further information or progressing through the objection process.
Others are fundamentally different.
Warning signs of a more substantial dispute can include:
- significant additional tax liabilities;
- substantial penalties or interest;
- complex corporate or trust structures;
- disputed transactions;
- conflicting interpretations of taxation legislation;
- international taxation issues;
- significant evidentiary disputes;
- allegations involving tax avoidance provisions; or
- a realistic prospect that the matter will progress to the Tribunal or Federal Court.
At that point, the question is no longer simply how to respond to an ATO letter.
It becomes a question of case strategy.
For instructing solicitors, that can include identifying the issues that genuinely require determination, testing the available evidence, considering the taxpayer’s prospects and ensuring the objection is approached with any potential later review or litigation in mind.
Chris Garlick accepts briefs from solicitors in complex Commonwealth taxation matters. Further information about instructing counsel is available at Brief a Tax Barrister.
Received an ATO Amended Assessment? Start With These Five Questions
Before the matter progresses further, ask:
1. What exactly has the ATO changed?
Identify the income, deduction, transaction or other issue that produced the amendment.
2. Why does the ATO say the original assessment was wrong?
Understand the factual findings and legal reasoning behind the decision.
3. What evidence supports the taxpayer’s position?
Locate the contemporaneous documents before assuming they will be available later.
4. When does the objection period expire?
Establish the actual deadline applicable to the particular assessment.
5. What happens if the objection is unsuccessful?
Consider the dispute not only as it stands today, but also in light of any potential Tribunal review or Federal Court proceedings.
Those five questions can quickly reveal whether the amended assessment is a relatively contained issue or the beginning of a much more significant taxation dispute.
An Amended Assessment Is a Decision, Not Necessarily the Final Word
Receiving an unexpected ATO amended assessment can create immediate financial pressure.
But the size of the new tax bill should not distract from the central issue:
Is the amended assessment correct?
Answering that question may require careful analysis of the facts, the evidence and the relevant taxation law.
Where substantial amounts are involved or the matter raises complex legal or evidentiary issues, dealing with those questions early may help protect the taxpayer’s position before important objection or review deadlines expire.
Brief Chris Garlick
Chris Garlick is a Queensland barrister practising in Commonwealth taxation law.
Chris accepts briefs from solicitors throughout Australia in matters involving ATO audits and investigations, assessments and amended assessments, taxation objections, objection decisions, Administrative Review Tribunal proceedings, Federal Court taxation litigation and complex taxation advice.
Counsel may be briefed to provide written opinions, advice on prospects, settle objection grounds and submissions, consider evidentiary issues and provide advocacy in taxation proceedings.
For solicitors with a client facing a significant ATO amended assessment or taxation dispute, contact Chris Garlick to discuss briefing counsel.
Call: 0417 427 535
Email: garlick.qldbar@gmail.com