Who would you rather be in a fight with – Tyson Fury (heavyweight boxing world champion) or Chris Jordan (Australian Taxation Office commissioner)? The answer should be neither – both are big tall men with a lot of armoury at their disposal.

But not all accountants recognise that you are in a boxing ring with the ATO and that your opponent understands the rules of engagement much better than you do.

Here are some training tips from a tax lawyer who has assisted in both corners of the ring.

Tip 1: Posturing

It’s not exactly trash-talking your opponent before a bout, but since late 2019, the Australian Taxation Office (ATO) has been giving a consistent message that it is focusing greater attention on SMEs and high-wealth individuals. So take notice.

The ATO estimate a 'tax gap' of 12.5% or A$11.1 billion in SME tax in 2015-2016. For large corporates, the number is much smaller and falling. Accountants focusing on SMEs and high-wealth individuals should warn their clients to expect extra ATO attention in 2020 and beyond. What worked in the past may not work in the future.

Tip 2: Get on the front foot and to the centre of the ring

That is how Tyson Fury overcame Deontay Wilder in the much publicised world heavyweight title match in February 2020 where both boxers up to that point were undefeated. With the ATO, too, you have to be proactive and nimble.

If your instincts tell you that your client may have a tax issue you are probably right. So don't wait. Get on the front foot.

Encourage your client to get an independent and objective second opinion with the benefit of privilege. Tax lawyers are not there to take your client; they are engaged to help your client and you. 

When accountants and lawyers team well together it can be very effective for their mutual clients. Too often, accountants leave this step until too long in the process and, in the meantime, the ATO view solidifies. Influence is greatest when the ATO is making up its mind, not when its mind is made up.

“Influence is greatest when the ATO is making up its mind, not when its mind is made up.”

Tip 3: Be prepared

You are at your strongest when you are fully across all facts and evidence. For example, in recent times the ATO have been issuing extensive information requests and if they are not satisfied with the responses, then formal notices usually with a very broad scope. If in doubt, the ATO asks for it.

Often these requests/notices can potentially capture tens of thousands of documents (including emails over many years, their attachments, meeting minutes, documents, advice, etc) that must be considered to properly address such requests and notices.

Thankfully, tax dispute lawyers assist by using sophisticated data management tools that can significantly reduce the time involved with this task via predictive coding, eliminating duplicate documents, tagging for legal professional privilege and the like.

Another issue that needs addressing is the practical one of time lags: tax matters can stretch back years and, often, key people have moved on. Memories fade, documents get archived and forgotten. Again, these logistical challenges are best identified and managed early on.

Tip 4: The coach could be in the ring as well!

In the past 12 months, the ATO has been more vocal about what it expects of accountants when advising taxpayers. Just as boxer Tyson Fury said he would break down Wilder and did, Tax Commissioner Chris Jordan has recently said that for certain tax advisers, the ATO intends to “deal with them pretty hard” where their history shows such treatment is warranted.

For example, tax promoter penalty provisions (introduced into the tax law in 2006 but rarely used so far) are being closely considered by the ATO.

These sentiments have recently been echoed by the Second Commissioner Jeremy Hirschhorn to the Big Four accounting firms, warning of the ATO's concern over advisers "who seem to operate almost on the basis that tax is discretionary, or for people who are not as clever as them or their clients".

Tip 5: Beware the counter punch

Many accountants (and therefore their clients) underestimate the ATO. But you should be aware that the ATO possesses both formidable legal powers and significant knowledge about your clients, their industry and their competitors.

I’ve seen many examples where preliminary answers were given to the ATO before lawyers were engaged, which later turned out not to be sufficiently supported by documentary evidence. A forensic evidential approach adopted by tax lawyers at the outset assists to minimise that risk.

Tip 6: Don't underestimate your opponent and get match fit earlier

The ATO is quicker these days to form a view about a taxpayer and its advisers, including engaging their own tax lawyers earlier in the process than they used to. The results have been that the ATO win rates in the Federal Court and the Administrative Appeals Tribunal have been increasing in recent years.

Accountants and their clients should do the same to stay in the game. Remember, too, that the ATO now has far more seasoned private sector expertise within its ranks than was the case prior to 2013.

Both Jordan, appointed in 2013, and Hirschhorn are respected ex Big Four tax partners. Today, the ATO has many former private sector accountants and even ex-heads of tax from corporates within its ranks.

Hopefully these tips will assist to ensure your client's ATO matter is successfully resolved in the seventh round (or earlier) rather than stretching out to the 12th round.

Read more: