A review notification rarely arrives cold. By the time the letter lands, the ATO has usually been looking for months.
Most practitioners know the basics. But understanding which program triggered the contact, what data the ATO already holds and where the process is heading: that is where the advantage lies.
The ATO’s compliance machine
The Compliance and Engagement Group runs targeted programs.
1. Private Wealth: Top 500, Next 5,000 and Medium and Emerging target groups by turnover, assets and wealth. Targets include property disposals, trust distributions, Division 7A and losses.
2. Small Business: benchmarks, TPAR data matching and shadow economy program for businesses up to $10M turnover.
3. Fraud and Criminal Behaviours: AUSTRAC referrals, offshore arrangements, phoenixing. Formal process with limited negotiation.
4. Individuals: computerised risk checks flag large work-related deductions, rental losses and unexplained wealth.
The ATO cross-matches data from banks, title offices, AUSTRAC, employers and online platforms. If deposits do not match reported income, the ATO usually already holds the data.
Review vs audit
A review assesses risk. An audit means the ATO believes there is a problem. Most matters start as reviews but can escalate without warning.
Key points:
1. Ask why the client was selected. The ATO Charter requires transparency. The Deputy Commissioner in the signature block tells you which business line is running it.
2. Check the amendment period. If they are reviewing years outside it, they may be considering fraud or evasion. Clarify immediately.
3. Voluntary disclosure before the ATO notifies an examination can reduce penalties by up to 80%. Once a review has commenced, the statutory reduction is 20%, though the Commissioner retains a discretion to treat a disclosure as if made earlier.
4. The ATO can record calls.
The practitioner takeaway
1. Preparation costs less than response. Proper trust resolutions, compliant Division 7A loans, reconciled BAS figures and documented CGT calculations are your first defence.
2. Know what is compulsory. Formal notices under section 353-10 of Schedule 1 to the Taxation Administration Act 1953 compel production. During reviews, many requests are informal.
3. Position papers are your opportunity. In audit, the ATO issues one before assessment. Present the technical case before they commit.
4. Settlement follows litigation risk. The ATO’s Code of Settlement governs. Settlements are based on expected recovery, not sympathy.
5. Objection rights survive. The period is generally two years for most individuals and small business entities and four years for others, measured from the notice of assessment. If the objection fails, the Administrative Review Tribunal and Federal Court remain available.
The best strategy has not changed: get the position right, document it and engage early if a review begins.
General information only. This note was accurate when written. The law may have changed since and the note is not updated. It is not legal or tax advice, does not take account of your circumstances and must not be relied upon as a substitute for advice on your own matter. If the issue is live for you or your client, email arda@nortonquaytaxlaw.com.au for advice on the current position.