ATO settles on almost $3 billion with companies after disputes

The Australian Taxation Office struck deals worth almost $3 billion with large businesses rather than heading for court last financial year as it dramatically ramped up its collection activities.

Its annual report for the last financial year shows it hit 81 large businesses with tax bills and settled most of those cases.

When Tax Commissioner Chris Jordan took office he vowed he would put an end to drawn-out legal disputes and focus its efforts on cases it can win. Credit: Louie Douvis

This means the tax office is going after more large companies, but in dollar terms is also agreeing not to prosecute as many court cases involving the top end of town.

When Tax Commissioner Chris Jordan took office he vowed that he would put an end to drawn-out legal disputes and focus its efforts on cases it can win.

The tax office's 2014-15 annual report notes many settlements are reached either because the cost of litigation outweighs the benefit or the parties litigating have relatively strong positions.

The report shows the ATO accepted about half the $5.6 billion it originally demanded from the companies involved.

Across all taxpayers about 1000 cases were settled during the year, more than double the 390 cases settled the previous year, raking in a total of $3.9 billion up from $2.61 billion the previous year.

A spokeswoman for the ATO said the agency would "not settle a dispute at any price".

"Our strong preference is to avoid disputes and to pursue voluntary compliance and willing participation," she said.

Most interactions with the ATO did not end up in dispute, but where they did arise, "our aim is to resolve them early and avoid litigation where possible".

PwC tax controversy partner Ashley King said more settlements "shows the ATO commitment to avoiding protracted disputes and resolving cases without the need for litigation".

The tax office reported tax revenue was down $9.4 billion compared to the forecast in the 2014 federal budget.

Close to 450 cases were settled in support of current and future compliance, many of which fell under the recent amnesty that the ATO gave Australians with money and / or assets offshore.

Dubbed "Project DO IT", the amnesty accounted for 335 of these, but has so far raised only $127 million in collections.

As of June 30 the Tax Office had received more than 5800 disclosures as part of the amnesty, resulting in more than $5 billion in assets declared and more than$600 million of omitted income disclosed.

"We anticipate significant future tax collections as a result of the assets and income being brought into the tax system under this initiative," the ATO says in the report.

Other reasons for settling were litigation cost outweighing the benefit (in 274 settlements) and the relative strength of the parties' positions (172 settlements), the report says.

Tax debt rising

The Australian Taxation Office's 2014-15 annual report also shows tax debts – mainly owed by small business – are also rising, despite the ATO's tougher approach to debt collection.

Total debt was up from $34.2 billion to $35.1 billion. The ATO said in its report $1.4 billion in debts were uneconomical to pursue.

Litigation is still happening The ATO said close to 700 applications for litigation (in either the Administrative Appeals Tribunal or the Federal Court) were received in 2014-15.

The ATO reported almost $1 billion ($996 million) in liabilities as a result of voluntary disclosures. This included about $208.6 million in additional GST liabilities, with cash collections of $201.1 million, as a result of voluntary disclosures from large businesses in 2014-15.

Lower than expected growth in wages and profits because of sharp declines in commodity prices has meant the ATO has been unable to meet its own revenue forecasts.

Net tax collections (total tax collections less refunds to taxpayers) in 2014-15 was $336.8 billion. This was up $15.2 billion (4.7 per cent) on the same period last year, but $9.4 billion (2.7 per cent) below the amount expected at the time of the 2014-15 budget.

The ATO's annual report the year before (in 2013-14) had said overall net tax collections were expected to increase by 7.5 per cent during 2014-15.

In 2014-15 the ATO issued 11.3 million income tax refunds with a total value of $41.1 billion, down from $43.1 billion the year before. Total refunds (including activity statement refunds) were down by 2.1 per cent to $95.5 billion.

Overall the Tax Office conducted 4.7 million compliance activities (reviews and audits) raising $13.5 billion in liabilities and raising $9.6 billion in cash (as compared to $15.2 billion in liabilities and $9.4 billion in cash the year before).

The wealthy were the focus of much of its compliance activities – it went after 9400 privately owned and wealthy groups raising more than $2.1 billion in liabilities and nearly $1 billion in cash collections.

In 2014-15 the ATO said it initiated 1.8 per cent of all bankruptcies and 13.7 per cent of all wind ups across all taxpayer segments.