The ATO’s Code of Settlement sets out its policy on settling tax and superannuation disputes with taxpayers, including disputes that involve debt. The Code, published in Practice Statement PS LA 2015/1, states that settlement negotiations or offers can be initiated by any party to the dispute and can occur at any stage, including before assessments are raised. Practice Statement PS LA 2015/1 is available online from the ATO Legal Database.
The ATO will consider all of the following factors when deciding whether to settle a dispute:
- the relative strength of the parties’ positions;
- the cost versus the benefits of continuing the dispute; and
- the impact on future compliance for the taxpayer involved and the broader community.
According to the ATO, settlement is not generally considered in situations involving a contentious point of law that requires clarification, situations when it is in the public interest to litigate or situations where a taxpayer’s behaviour is such that the ATO needs to send a strong message to the community.
The ATO says its decision to settle must be fair, effective, and efficient. Each decision will be based on an informed understanding of the relevant facts and issues in dispute, as well as any settlement advisory panel advice, or legal and other expert opinions. The ATO notes that a settlement can only be approved by an appropriately authorised or delegated officer.
The settlement itself must be finalised by the parties signing a written agreement that sets out the terms. A settlement agreement will only be varied in exceptional circumstances, if it is requested by the taxpayer who is party to the agreement.
The ATO website provides model deeds that can be used as a basis for a deed of settlement, and a practical guide that gives examples to illustrate how the Code of Settlement operates.
In relation to future years, the ATO says a settlement agreement provides a reasonable basis for treating similar issues, unless it is specifically stated that the agreement does not apply to future years or transactions, or:
- the taxpayer’s circumstances change materially;
- the application of the law remains unclear;
- there have been subsequent amendments to the law;
- a taxation ruling has subsequently been released on the issue; or
there has been a subsequent court or tribunal decision on the issue.
Where required, the ATO can provide greater certainty for taxpayers for future years.
If you need help with any tax dispute issues, please call us on(08) 9321 2642 to discuss.
