Responding to an ATO position paper

An ATO position paper is the ATO's written preliminary view near the end of an audit: the facts as it sees them, how it says the law applies, the extra tax it proposes and, usually, whether it proposes penalties. Responding to it fully and on time is often your most practical chance to change the ATO's audit findings before they become amended assessments.

You can't object to a position paper, and once assessments issue, the burden on any review or appeal is on you to prove them wrong. For our wider audit work, see ATO audits, reviews and objections.

What is an ATO position paper?

Before finalising an audit, the ATO usually puts its proposed audit findings in writing. Its small business guidance refers to an "interim position paper" from the audit team, followed later by the ATO's "final audit position" (ATO, Small business independent review, last updated 16 September 2026). Larger matters may have separate papers on different issues or on penalties.

A position paper typically covers:

• Facts: the transactions, dates and amounts, as the ATO understands them.
• Law: the provisions, rulings and cases it relies on.
• Adjustments: the extra tax for each period, and how it was calculated.
• Penalties: any proposed penalty and the behaviour the ATO alleges.

The ATO can change its view after your response. Objection rights under Part IVC of the Taxation Administration Act 1953 (TAA) attach to assessments and other formal decisions, not to a position paper.

Which ATO audit letter do you have?

Letter	What it does	What to do
Notice of a review or audit	Sets the taxes, periods and issues	Confirm the scope; get advice before explaining in detail
Information request or formal notice	Asks for documents or answers; a TAA Sch 1 s 353-10 notice is compulsory	Answer accurately and on time, after checking privilege
Interim position paper	The ATO's preliminary view	Respond in writing by the date set
Final audit position	The ATO's view after your response; may offer an independent review	Decide on review (within 14 days) or settlement
Amended assessment and penalty notice	The formal decisions	Diary the objection and payment dates

For formal notices, see ATO information notices and access powers. For the full sequence, see what happens in an ATO audit, and for other kinds of ATO letter, what an ATO letter means.

Why your response matters

1. It comes before assessment. After assessment, on review in the Administrative Review Tribunal (ART) or appeal to the Federal Court, you must prove the assessment is excessive or otherwise incorrect and what it should have been, generally limited to the grounds in your objection (TAA ss 14ZZK, 14ZZO).
2. Penalties are decided on it. The ATO's penalty practice statement says you should generally be given the chance to explain before a penalty decision is made, and that conclusions about behaviour should be supported by, or reasonably inferred from, the facts (PS LA 2012/5 para 7).
3. Silence has consequences. The ATO may treat not responding to the interim position paper as a sign that a small business has disengaged, which makes it ineligible for independent review.
4. Interest keeps running. For income tax, shortfall interest charge (SIC) runs from the original due date until the day before notice of the amended assessment (TAA Sch 1 s 280-100(2)), so a longer audit means more SIC. SIC and general interest charge (GIC) aren't deductible for income years starting on or after 1 July 2025 (Income Tax Assessment Act 1997 (ITAA 1997) s 26-5(1A)).

How long do you have to respond?

The covering letter sets the date. Work from that date rather than assuming a standard period, and treat it as firm: if the ATO hears nothing, it will generally finalise the audit on its own view.

If you need more time, ask in writing before the due date, explaining why and proposing a specific date. Don't assume an extension until the ATO confirms it. Two other dates matter:

• The amendment period. The ATO can generally only amend an income tax assessment within a limited period (Income Tax Assessment Act 1936 (ITAA 1936) s 170(1)). Near the end of it, the ATO may ask you to consent in writing to an extension, apply to the Federal Court for an order extending it (s 170(7)), or issue assessments on what it has. Get advice before agreeing or refusing. See how far back the ATO can audit.
• The independent review window. If the ATO offers a small business independent review, you have 14 days from the date of the offer to request it (see below).

How to structure a response to an ATO position paper

A good response is a standalone document that an officer new to the file could follow. We usually organise it like this:

1. Summary. What you accept, what you dispute, and the outcome you say is correct, with figures.
2. Facts. Correct each error or omission in the ATO's account, with a reference to the evidence. Many audits turn on facts more than law.
3. Evidence. An indexed bundle: contracts, invoices, bank records, minutes and emails made at the time. Where records are missing, say so and explain what other evidence exists, such as statutory declarations.
4. Law. Answer each provision, ruling and case the ATO relies on, and point to any ATO public ruling or guidance that supports you.
5. Numbers. Check the ATO's calculations, even on issues you dispute.
6. Penalties and interest. Address them separately. The Commissioner may remit SIC where it is fair and reasonable to do so (TAA Sch 1 s 280-160), so explain any delays in the audit that you didn't cause.
7. Next steps. Offer a meeting, and say whether you are open to settlement or alternative dispute resolution.

Concede points that are clearly right: it makes the rest more credible.

Everything in the response is a statement to the ATO. A false or misleading statement made without reasonable care can attract an administrative penalty even if it doesn't change the tax payable (TAA Sch 1 ss 284-20, 284-75(1), 284-90(1) items 3A–3C). Check every fact against the documents before it goes in.

How to respond to proposed ATO penalties

Treat a proposed shortfall penalty as a separate question from the tax. The base penalty is 25% of the shortfall for failing to take reasonable care, 50% for recklessness and 75% for intentional disregard of the law, whether by you or your agent (TAA Sch 1 s 284-90(1)), doubled for significant global entities (s 284-90(1A)). Points to address include:

• Reasonable care. No penalty applies if you and your agent took reasonable care in making the statement (s 284-75(5)).
• Safe harbour. Generally no penalty applies if a registered tax or BAS agent made the statement, you gave them all relevant taxation information, and the error didn't result from the agent's intentional disregard or recklessness (s 284-75(6)). You need evidence of what you gave the agent (s 284-75(7)).
• Reasonably arguable position. A 25% penalty can apply, even where reasonable care was taken, if an income tax position wasn't reasonably arguable and the shortfall is more than the reasonably arguable threshold: generally the greater of $10,000 or 1% of the income tax payable on your return, with a higher threshold for trusts and partnerships (s 284-90(1) items 4–6, (3)). Where more than one base penalty could apply, only the highest is used (s 284-90(2)). A position is reasonably arguable if, having regard to the relevant authorities, it is about as likely to be correct as incorrect, or more likely correct (s 284-15).
• Accepted interpretation. The penalty is reduced to the extent you followed advice the ATO gave you or your agent, general administrative practice or a publication the Commissioner approved in writing (s 284-224).
• Increases and reductions. The base penalty rises by 20% in cases such as obstructing the ATO from finding out about the shortfall, or a repeat penalty (s 284-220). It falls by 20% if, after being told of the audit, you voluntarily tell the ATO about the shortfall in the approved form and that can reasonably be estimated to have saved it significant time or resources (s 284-225(1)). The ATO can choose to treat a disclosure made after notification as if it were made before, which attracts a larger reduction (s 284-225(5)). It says it generally will where it was only identifying or assessing risks, such as in a risk review, but not usually once an audit has followed that review (MT 2012/3, paras 133, 135).
• Remission. The Commissioner may remit all or part of a penalty (s 298-20).

See ATO penalties and penalty remission.

Keep privileged advice separate

• Write the response as its own document. Don't attach or quote your lawyers' advice. Disclosing privileged advice, even in part, can waive privilege.
• Know what is covered. Legal professional privilege can protect confidential communications with your lawyers made for the dominant purpose of legal advice or litigation. Advice from accountants generally isn't privileged.
• Keep drafts internal. Drafts and notes about weaknesses in your case should stay with you and your advisers.

Can you ask for an independent review?

The ATO may offer eligible small businesses an independent review before it finalises the audit. According to its Small business independent review page (last updated 16 September 2026):

• Who: businesses with turnover under $10 million that aren't part of a group with total annual turnover over $10 million.
• What: disputes about income tax, GST, excise, luxury car tax, wine equalisation tax or fuel tax credits.
• How: the offer comes with the final audit position. You request the review by email within 14 days of the date of the offer, setting out each area of disagreement, and may be asked to consent to extending the amendment period. If you don't consent when asked, you aren't eligible.
• The review: an ATO officer with no previous involvement looks at the supporting documents, facts and technical merits of both positions, before any assessment issues. You can still object afterwards.
• No new material: the reviewer generally won't consider new facts, evidence or arguments, and may discontinue the review if you raise them (ATO, The independent review process, last updated 16 September 2026). Put your full case in the position paper response.

Among other exclusions, a review isn't available for disputes about super, fringe benefits tax, fraud or evasion findings or interest, or once an assessment has issued, an objection is lodged or you have disengaged from the audit.

For larger businesses, the ATO discontinued its large market independent review (turnover over $250 million) from 1 October 2026 (ATO, Large market independent review, last updated 16 September 2026). The ATO's current dispute resolution pages offer no independent review for businesses in between, with turnover of $10 million or more (or in a group over that amount) but not in the large market. Those businesses can still use in-house facilitation, settlement, objection and other options.

Can you settle with the ATO during an audit?

• Settlement. Under the ATO's Code of settlement, either side can start negotiations at any stage, including before assessments are raised. Statements made in negotiations aren't to be treated as an admission of liability and can't be given in evidence (PS LA 2015/1, section 4).
• Alternative dispute resolution (ADR). The ATO says ADR may suit where it can give a quicker or cheaper resolution or narrow the facts and issues in dispute (PS LA 2013/3 para 8). ADR processes include mediation and neutral evaluation (para 23).

Whether to settle depends on the strength of each side's case and the cost of continuing.

What happens after you respond?

The ATO considers your response, revises its position or explains why it hasn't, then finalises the audit. It issues any amended assessments, with written notice of any penalty and the reasons (TAA Sch 1 ss 298-10, 298-30).

• Objection. You can generally object only to the matters that changed (TAA s 14ZV). The deadline is the later of the original objection period (generally 2 or 4 years after notice of the original assessment) and 60 days after notice of the amended assessment is served (s 14ZW(1B), (1BA)). A late objection needs a written request explaining the delay, and the ATO decides whether to accept it (ss 14ZW(2), (3), 14ZX). Grounds must be stated fully and in detail (s 14ZU), and your position paper response is often the starting point. See ATO objections.
• Penalties and interest. A penalty assessment can be objected to (Sch 1 s 298-30(2)), generally within 60 days after notice of it is served, or within any longer period you have to object to the related assessment (TAA s 14ZW(1)(c), (1BB)). A refusal to remit can be objected to where the penalty left is more than 2 penalty units (Sch 1 s 298-20(3)). For interest, see shortfall interest charge remission.
• Review and appeal. If the objection is disallowed in whole or in part, you can generally apply to the ART or appeal to the Federal Court within 60 days after being served with notice of the objection decision (TAA ss 14ZZC, 14ZZN). The ART can extend that time on application (Administrative Review Tribunal Act 2024 s 19), but an extension isn't automatic.
• Payment. A pending review or appeal generally doesn't stop the ATO recovering the tax (ss 14ZZM, 14ZZR), so plan for payment while the dispute runs. For some small business assessments under review, the ART can make orders affecting recovery (s 14ZZM(2)).

How we help

We review the position paper against your records, tell you where the ATO's view is open to challenge, and prepare the response. We also advise on extensions, independent review and settlement, and work alongside your accountant: see how we work with accountants.

Next step

Send us the position paper (every page) and its covering letter, the ATO's earlier information requests and your answers, and the returns or activity statements under review. If the ATO has offered an independent review or asked you to consent to extend the amendment period, include that letter too. In a first call we'll confirm your deadlines and tell you what the response needs to cover.