With most tax professionals now returning to work after the holiday break, this is the ideal time to do a stocktake of the status of recent tax, superannuation and related Bills which may affect tax practitioners and their clients in 2021. This article...
How does the ATO obtain taxpayer information?
The ATO’s power to access taxpayer information
The ATO’s wide-ranging formal and informal information gathering powers are supported by an arsenal of powerful computers, connections with other government bodies and an array of sanctions to assure cooperation, which collectively give it a broad and detailed view of the taxpayer population.
It is well known that the ATO has legislative powers — often referred to as ’coercive powers’ — to issue notices to request and obtain information from taxpayers and their advisers.
Currently, the ATO’s generally preferred strategy is to request information from taxpayers using a cooperative approach without involving the use of its statutory powers unless necessary.
Through mandatory reporting of a vast range of payments and transactions by the payers, payees, government bodies and other third parties, the ATO also has access to vast amounts of data about taxpayers that are held by third parties, including from overseas.
These developments, mainly over the past decade, mean that the scales between the taxpayer and the Commissioner in relation to information gathering have now arguably tipped in favour of the Commissioner. Further, the statutory burden of proof rests on the taxpayer.
However, the ATO’s access powers are not unlimited. Taxpayers and their advisers need to know their rights and the protections available to them in the face of such broad powers and resources.
Why is the burden of proof — and record keeping — important?
In a Tribunal review or Federal Court appeal in relation to a tax assessment, Pt IVC of the TAA imposes a statutory burden on the taxpayer to prove:
- that the assessment is excessive or otherwise incorrect; and
- what the assessment should have been.
There is a legal presumption that a Commissioner’s assessment is correct unless the taxpayer produces evidence to prove what it should be.
Therefore, it is imperative that taxpayers retain records (business and personal) in relation to their tax affairs to support their position in the case of an ATO review or audit, or Tribunal / Court proceedings.
In addition, it is a legal requirement to keep records (generally for five years) — penalties apply for non-compliance.
What are the Commissioner’s powers?
Formal power to issue a notice
The Commissioner has three distinct formal powers to issue:
- a notice to give information
- a notice to attend and give evidence
- a notice to produce documents
Note: The Commissioner is permitted to issue a formal notice to a third party (e.g. a bank) without seeking the express consent of a taxpayer beforehand.
The Commissioner’s powers extend to obtaining a taxpayer’s electronic information.
Clients may consider bringing their own legal representation or other professional adviser to a meeting when responding to a notice to attend and give evidence (i.e. an interview).
Care should be exercised in order to ensure that each of the particulars in the formal notice is responded to in full.
Formal power to access premises
Authorised ATO officers have the power to enter the premises of taxpayers or third parties (e.g. advisers) and to have ‘full and free’ access to documents and other property on the premises.
The Courts have held that the Commissioner’s power of ‘full and free access’ to all buildings and documents is an unrestricted right, subject only to its exercise being in good faith.
Upon entry to premises, each ATO officer is required to show the occupier of the premises their written authorisation upon request by the occupier.
Are there penalties for not complying with a notice or denying access?
Penalties for not complying with a notice or denying access to premises and documents include financial penalties and/or up to two years’ imprisonment.
The Commissioner’s informal powers
The ATO states that it prefers to gather taxpayer information by ‘simply requesting it from you’. It is within the Commissioner’s general powers of administration to request and obtain information without using formal powers. However, if the ATO cannot obtain the information in a cooperative way, it may use its formal powers. The ATO may also use formal powers at the outset in certain circumstances.
Reference: ATO online guide titled ‘Our approach to information gathering’ (QC 56551).
The Commissioner’s powers to obtain third party data
The ATO has a number of mechanisms through which it may gather a taxpayer’s information from third parties, including:
- legislated data collection from banks, employers, private health insurers etc. (this information is commonly used to pre-fill tax returns)
- third party reporting regimes
- formal data matching programs
- data exchange agreements with government agencies.
Managing information requests
Questions to consider when managing document requests
Upon the receipt of a request — whether formal or informal — for information and/or documents, consider the following questions:
- Should only the information that has been specifically asked for be provided or is there additional information which should be provided to assist the taxpayer?
- Does any of the requested information seem irrelevant to the dispute? If so, the taxpayer can ask for clarification about why the information is relevant.
- How should the response be phrased and relevant documents packaged, to give the most favourable view to the taxpayer’s position?
- Is there contemporaneous documentation or other evidence to support the response or is the statement merely an unsupported assertion by the taxpayer?
- Does legal professional privilege, the accountants’ concession, the corporate board concession, or any other privileges or immunities apply to limit disclosure of any documents?
Good record-keeping practices when managing information requests
The taxpayer and their adviser should apply appropriate procedures, for example, to ensure that:
- a copy of all documents provided to the ATO is kept in a separate file, with a cross-reference to the location of the original document;
- all responses are provided within the relevant timeframe, or where it is not possible, the ATO is notified as soon as possible, and prior to the due date, and an extension arranged;
- all communications with the ATO, including phone calls and interviews, and the provision of documents and other information, are documented;
- a record is kept of the electronic data accessed by the ATO; and
- a scribe is present at each meeting with the ATO in order to accurately document matters discussed.
Should a settlement be considered?
The ATO may seek information or documents at any time, including prior to compliance activity, or during a specific review or audit. Where there is a possibility of entering a settlement with the ATO, it should always be considered on its merits, as they form a critical part of holistic dispute resolution strategy.
A written settlement agreement executed with the Commissioner may serve to expedite disputes where the client and/or the ATO make concessions on what they consider is the legally correct position. In addition, there may be implications for the client’s administrative, time and financial costs in protracting a dispute, including potentially extensive information-gathering tasks that may be required to satisfy the ATO’ information requests.
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