FBT Audits and Negotiating a Suitable Settlement
Having been the subject of an FBT audit – or any other type of audit for that matter – one must consider negotiating a suitable settlement of the case if circumstances allow.
Further, there may also be some scope for a settlement on the level of penalties that were applied by the ATO auditor.
Object of negotiation
The main object of a negotiation is to reach a mutually agreeable settlement with the ATO auditor on contentious matters that arise during the audit. Due to the contentious nature of the items, those issues will need to be clarified from an immediate viewpoint but, more importantly, the future treatment of those items in years to come.
Success of negotiation
The overall success of the negotiation will depend not only on the issues in dispute and whether there are grounds for negotiation, but also on the degree of cooperation that was given to the ATO auditor.
Due to the fact that ATO auditors have been set targets for case coverage and turnover, it is often the case that they are reluctant to become involved in disputes that may last for some time. Consequently, they may be more than willing to negotiate a settlement.
If the ATO auditor has made adjustments to the FBT return due to finding blatant evasion, then there is little chance of a successful negotiation. On the other hand, if the adjustments are contentious, there is a chance of settlement.
When attempting to negotiate, the employer can adopt one of two basic stances. The first approach involves a “win at all costs” attitude. In most cases – particularly where there are elements of doubt in the adjustments – this method will be of little use, as it will only serve to make the ATO auditor more determined not to settle.
In many cases, the more appropriate and often more successful method involves a certain degree of compromise by both parties. When the taxpayer or employer adopts a reasonable attitude and is willing to concede on certain areas, the ATO auditor is often willing to accommodate on a settlement offer, provided they feel that they are getting something in return.
In applying the level of penalties, the ATO auditor considers the extent of the culpability of the employer, as well as the level of cooperation provided. The discretion allowed to the auditor over the remission of the penalties imposed will depend entirely on the degree of cooperation by the employer.
Objections and appeals
Having been subject to an FBT audit and subsequent adjustments, the employer does not lose their rights of objection and appeal against the amended assessment.
However, note that there are time limits on making a valid objection. The notice of objection must state in full the grounds upon which the employer relies.
This is extremely important – take care to ensure that all applicable grounds have been canvassed. The ramifications of this may be felt in the appeal stages where an employer may be limited in their appeal to the grounds established in the notice of objection.
After the negotiation
Having successfully negotiated a settlement with the ATO auditor, it would be wise to have the terms of the settlement detailed and confirmed in writing from the ATO. This assists on two fronts. First, it prevents the ATO auditor disputing the adjustments, and secondly, it provides a precedent for the future treatment of those negotiated items.