Welcome amendments to the ATO’s processes in forming a fraud and evasion opinion

On 17 May 2018, the ATO updated its practice statement (PS LA 2008/6) providing for a more robust and comprehensive process before the Commissioner can form an opinion there has been fraud or evasion.  Where the Commissioner forms an opinion there has been fraud or evasion by a taxpayer in a particular income year, he then has an unlimited amendment period in which to raise an amended assessment outside of the usual 2 or 4-year time limits.

Prior to the amendments to PS LA 2008/6, ATO officers believing there had been evasion of tax were not required to seek further internal advice, although before a finding of fraud could be made there did need to be an internal referral.  

Changes to PS LA 2008/6, first foreshadowed last year, come after a 2015 Parliamentary Inquiry called for amendment to the law and ATO practice in this area including reversing the onus back on to the Commissioner requiring him to prove there had been fraud or evasion.  Since June 2017, the Inspector-General of Taxation has also been conducting his own review of ATO fraud control management including the making of fraud or evasion opinions.

In the amended PS LA 2008/6, the ATO has resisted wholesale changes however it has sought to bolster its internal processes before an opinion of fraud or evasion can be formed. 

A newly created internal ATO ‘National Fraud or Evasion Advisory Panel’ (the Panel) comprising members from the Executive Level 2 or Senior Executive Service rank, including one member from the referring Business Line, one from the ATO's specialist Tax Counsel Network and one independent expert in fraud and evasion is required to provide advice on whether there has been fraud or evasion in a particular case. 

If the Panel advises there has been fraud or evasion, a finding can only then be made by an Executive Level 2 or Senior Executive Services ATO officer. 

Importantly, PS LA 2008/6 is now explicit in requiring the taxpayer to be informed and, in the normal course, be made aware that the ATO are looking at the issue of possible fraud or evasion, including advising the taxpayer of any preliminary view in a position paper and inviting comment before forming any opinion.   PS LA 2008/6 notes:

Our work practices must provide assurance that the amendment power is being used appropriately and not merely to overcome period of review issues.” 

Although the amendments to PS LA 2008/6 (requiring the ATO to show greater transparency and assurance before making a finding) are welcome, they do not deal with the wider concerns, such as the unlimited amendment period that comes from a finding of fraud or evasion, that have been raised about the ATO’s very wide powers in this area. 

If you are aware the Commissioner may be considering the making of an opinion of fraud or evasion in your case or should you have any need for help in relation to a dispute involving the ATO please contact:

Sam Campbell
Associate | Business Law
Sladen Legal
M +61 423 515 454 | T +61 3 9611 0135
Level 5, 707 Collins Street, Melbourne, 3008, Victoria, Australia

Kelvin Yuen
Sladen Legal
T +61 3 9611 0177
Level 5, 707 Collins Street, Melbourne, 3008, Victoria, Australia
E: kyuen@sladen.com.au