5 reasons why a tax lawyer is needed to manage tax disputes

Handling a tax dispute with the Australian Tax Office (ATO) can be very stressful, time consuming and expensive. In these circumstances, a tax lawyer may be crucial to ensure that the tax dispute is managed properly, and resolved quickly, so that life can get back on track. It is also important to note that a lawyer can independently advise or act in a tax law matter, or work with an accountant. We have compiled our list of five reasons why a tax lawyer is needed to manage tax disputes.

  1. It is possible to receive a criminal conviction for failing to lodge a tax return.

Failure to lodge a tax return or business activity statement (BAS) is an offence under section 8C of the Taxation Administration Act 1953. There is a possibility that the taxpayer could be prosecuted for criminal charges under this section for the failure to lodge a tax return. Due to the serious nature of this offence, if a summons is received from the Court for failing to lodge a tax return, we recommend seeking help from a tax lawyer for advice and to appear in Court.

  1. There are many other significant penalties which may be imposed by the Court.

If a person is found guilty of an offence for failing to lodge a tax return, there are many penalties which may be imposed by the Court. This includes:

  • A fine;
  • Good behaviour bond;
  • Periodic detention;
  • Suspended sentence; or
  • Full time gaol.

When deciding which penalty to apply, the Magistrate or Judge will consider relevant details such as the circumstances of the offence, the length of time the tax returns were outstanding, the monetary amount involved, as well as the reason that the direction of the Commissioner of Taxation was not complied with. Other considerations include whether the person pleaded guilty or not (in which case they may be entitled to a discount on sentence), has prior convictions, employment history and any medical issues.

Alternatively, if a person is found guilty, consideration may be given to dismissing the charge without recording a conviction pursuant to section 19B of the Crimes Act 1914 (Cth). In doing so, the decision-maker will take into consideration relevant factors, such as the character, record and health of the person, the nature and circumstances of the offence and whether it is inexpedient to inflict any punishment.

  1. A tax lawyer can provide advice on how to minimise the penalty.

One of the key things that the Court will take into account in deciding the sentence is whether the defendant has done the right thing since the charges were brought. If the returns have been lodged, the Court will take a more favourable view. If more time is needed, the defendant can request an adjournment for more time to get everything in order.

If there is a failure to lodge the returns before the Court makes its final decision, then a higher penalty and an order from the Magistrate to lodge the documents within 90 days is likely to be received. If this Court order is not complied with, higher penalties and potential jail time may be received.

Furthermore, it is important to provide evidence that may persuade the Court that a conviction is not warranted. This may involve the commissioning of a report from a forensic psychologist setting out any mental health issues which may have prevented the taxpayer from attending to their affairs or which made doing so difficult.

  1. It is important to note that company directors may also be liable for offences committed by the company.

Directors may be prosecuted personally for tax offences committed by the company. It is a defence to liability if the director can prove that he or she did not aid, abet, counsel or procure the act or omission of the company and was not in any way knowingly involved in or a party to that act or omission.

Usually, the ATO will prosecute the company rather than the individuals who manage it. However, a director may be personally liable in circumstances where:

  • The company has insufficient assets; or
  • The directors were deliberately using the company to defeat the operation of tax laws; or
  • Where the company has already been prosecuted for a tax offence and it is apparent that the prosecution has not deterred the company from re-offending.
  1. Finally, tax payers are deemed to be guilty until proven innocent.

It is important to note that, unlike other areas of law, those charged with certain tax offences by the ATO shoulder the burden of proving their innocence. According to section 8L of the Taxation Administration Act 1953, the legal burden lies on the defendant to establish defences to the charges of making false or misleading statements and incorrectly keeping records.

This is despite evidence given to a parliamentary inquiry that small business and individual taxpayers often lack the resources to fight. This fact, combined with the ATO’s extensive powers to gather information, means that it is extremely difficult to prove innocence. Due to the strict nature of tax offences, we recommend seeking legal advice from an experienced tax lawyer as soon as a tax dispute arises.

Want to know what Butlers can do to help with a tax dispute? Please don’t hesitate to contact one of our experienced solicitors at Butlers Business and Law on (02) 4929 7002 or fill out an enquiry form on our website.