The business owner’s story
As the ATO started processing the audit in 2007, I had not filed any BASs or tax returns until the ATO clearly concluded the audit.
Unfortunately the audit took until 2011 to conclude. As a result, I had accumulated penalties and interest charges due to the ATO not meeting their baseline SLAs.
Further, the case changed through many ATO officers’ hands, making things more complicated.
I have several thousands of dollars-worth of business penalties and other personal tax account fines awaiting remit at the moment.
These are not of my fault, occurring because of the huge slowness of the audit. These are currently under review and discussions have been positive regarding removal of these amounts.
Timelines
- 2007: A letter was issued to me from the ATO regarding a PSI audit.
- I operated under a company/discretionary family trust structure with several directors associated with the company.
- Early 2008: An ATO representative attended the office of my then accountant to review all documentation relating to the audit years in question. The representative took the required documentation and no further correspondence was undertaken between my accountant and the ATO until late 2008. (Audit years were associated with a three-year period)
- The ATO informed my accountant in late 2008 that the original case officer had retired/moved on from the ATO and the case had been transferred to a case officer in another state. This then incurred additional cost to me as the new case officer requested the same information that was given to the original case officer at the start of 2008.
- The new case officer commenced to process the audit in early 2009. He requested documentation I did not have access to at the time as my accountant was on holidays until the end of January. I explained this to the officer and he continued to phone me daily throughout January and February 2009.
- My accountant supplied information to the officer from around February until June/July from memory. Again this was at additional cost to me as the original officer had this information back in 2008.
- Nothing was heard from the ATO until a notice of assessment paper was handed down in late 2009. As a result I employed the services of a lawyer.
- The notice of assessment outlined that I failed to qualify as a services business and should be processed under PSI legislation. The assessment did not clearly address the procedures (outlined on the ICA website information that I discovered in 2011) and how the ATO should approach such assessment. The 11-step criteria outlined in Taxation Ruling TR 2001/8, clause 10 regarding determination of a business or employee was not clearly referenced by the ATO. At the time, my lawyer and accountant missed this criteria, and when submitted again in 2011 the ATO asked why was this not submitted earlier? Hence rejecting the late submission.
- I had filed a notice of objection in late 2009.
- The ATO responded to the notice of objection in late 2010, around one year after the notice of objection was filed. Yet according to their own procedures they should have responded within 30-60 days.
- In late 2010 I filed with the AAT to have my case heard independently. The ATO agreed in early 2011 to remove penalties incurred since 2010. This was a positive outcome.
- New evidence was submitted pointing to the test cases and procedures outlined on the ICA website in mid-2011. The ATO asked why this evidence was not submitted earlier and rejected the submissions.
- I was left with the option of going to a full AAT mediation or court case, or drop the case. I dropped the case as I did not have the financial means to continue. Also, the ATO was charging interest and fines on late submission of returns, BASs, etc. These were late because I did not know where I stood because of the 4.5 years of the audit process.
- I have filed all returns to date and paid everything in full except for the penalties and interest charges. Some penalties and interest charges have been removed by the ATO, which has been a positive development.
Here are the lessons I have learnt about applying PSI:
- Group directors or individuals need to carefully review the actions of their accountant(s) and lawyer(s). Highly paid consultants are not always experts. Unfortunately, individuals will need to review the detail or legislation from time to time to best defend their position.
- Some lawyers and accountants (even with tax accreditation) have a very poor practical understanding of the PSI laws and audit process.
- The ATO processes are inefficient, drawn out, and not applied correctly.
