The changes will particularly affect the situation where there is an entitlement under any taxation law to the refund claimed upon lodgment of a return or other information provided by the taxpayer. This would include income tax returns for full self-assessment taxpayers (mainly companies and super funds), original or revised BASs (applying to tax periods starting before July 1, 2012), and BASs under the indirect tax self-assessment system that applies to tax periods starting on or after July 1, 2012.
Prior to the changes in the law, there was no legislative provision which allowed the Commissioner to retain a refund to check the validity of the claim, even if the Commissioner suspected it might have been incorrect.
The ATO recently released draft guidance to its staff on when it would be reasonable to exercise the Commissioner’s discretion to delay a refund amount.
Taxpayers can make a request under the Freedom of Information Act for documentation about the Commissioner’s decision to withhold a refund. The ATO will therefore keep a record of the reasons it has for withholding the refund.
Taxpayers can also seek a writ of mandamus against ATO staff to compel the release of a refund if an amount is withheld based on irrelevant factors, so the Commissioner is very conscious of the need for his staff to maintain complete and accurate records of the reasons for withholding any refunds.
If the Commissioner decides to withhold a refund, he is required to inform the taxpayer:
The Commissioner says his obligation to inform taxpayers may be satisfied in a number of ways, including by telephone, electronic mail, post, and text message. Don’t let that mobile phone battery run flat!
Where the Commissioner is unable to contact the taxpayer, he will be taken to have satisfied the obligation to inform the taxpayer by serving a document to the taxpayer’s preferred address for service of notices.
Taxpayers can object to the Commissioner’s decision to withhold a refund. The right to object arises 60 days (plus any applicable extensions) after the last day on which the Commissioner is required to inform the taxpayer of his or her decision to withhold the refund.
Where possible, the ATO has indicated it will advise taxpayers of the reason why a refund has been retained at or before the time of objection period in order to allow taxpayers to consider their reasons for lodging an objection.
If the Commissioner wishes to withhold a refund beyond the initial period of time (i.e. generally 14 or 30 days), the Commissioner must inform the taxpayer before that period ends. The continued withholding of the refund after this period is subject to an objective test of reasonableness.
The Commissioner may only withhold a refund until it would no longer be reasonable to require verification of the information that has been provided by the taxpayer e.g. where new information is available to the Commissioner.
Terry Hayes is the Editor-in-Chief of tax news reporting at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.
Terry Hayes is the editor-in-chief of tax news reporting at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.
