An ATO position paper is a formal document issued during the later stages of an audit, setting out the audit team’s preliminary view of the facts, the tax issues identified, and how they believe the law applies. It arrives before any final assessment is raised, giving you a concrete window to correct errors, challenge the ATO’s legal conclusions, and manage penalties before the dispute hardens into an amended assessment.
We have sat on both sides of this process. Our founder, Nitin Saby, spent years inside the ATO as a Tax Counsel Network Law Interpretation Specialist and Tax Specialist Executive before becoming a Tax Principal at a top-10 CAANZ firm. What follows reflects how the ATO actually thinks at this stage, drawing on direct operational experience rather than published guidance.
What an ATO Position Paper Contains
The position paper arrives after the information-gathering phase of an audit has closed. By this point, the ATO has reviewed your records, asked its questions, and formed a view. The document typically sets out four things[^1]:
- Facts. The ATO’s understanding of your transactions, entity structure, and financial records. These are not necessarily correct, and disputing them here is critical.
- Issues. The specific tax issues or anomalies the audit team has identified, whether that is unreported income, Division 7A loan account treatment, GST classification, contractor versus employee characterisation, or something else entirely.
- Law. The ATO’s interpretation of how the relevant provisions apply to your specific facts. This is where the technical argument lives.
- Proposed assessment. The calculated shortfall, including primary tax, shortfall interest charges, and any administrative penalties proposed.
The document also typically states a response deadline. In most cases, that window is 28 days.[2] That is not a long time to mount a considered technical response, particularly if your exposure is significant.
Why the Position Paper Is a Strategic Inflection Point
Most SME owners and directors treat the position paper as a compliance step: read it, hand it to the accountant, wait. That instinct is understandable. It is also costly.
Your response to a position paper shapes three things that matter well beyond the immediate audit[^3]:
- The factual record. If you do not dispute the ATO’s statement of facts, those facts carry forward into any objection, Administrative Appeals Tribunal (AAT) proceeding, or Federal Court litigation. Silence operates as concession.
- The penalty narrative. Shortfall penalties under Part 4-25 of Schedule 1 to the Taxation Administration Act 1953 can be reduced where a taxpayer demonstrates reasonable care, or increased where the ATO characterises the conduct as reckless or intentional. How you engage now shapes that characterisation.
- Your legal posture. If the position paper flags anti-avoidance provisions, Part IVA allegations, or fraud language, the matter has already moved beyond a standard audit response. Disputes specialists need to be involved at this point, before an assessment issues.
For directors specifically, the stakes extend beyond the company. Where the audit concerns unpaid GST or Pay As You Go (PAYG) withholding obligations, an uncontested position paper can accelerate the pathway to a Director Penalty Notice (DPN), making company tax debt a personal liability.[4] We have written separately about how DPNs are issued and why the timing matters for directors who need to understand that exposure in full.
How to Respond to an ATO Position Paper
Step 1: Read the facts section with forensic attention
The ATO’s statement of facts is the foundation of its entire legal argument. Every factual error that goes unchallenged becomes a concession. Read each paragraph against your actual records and identify every point where the ATO’s characterisation differs from what the documents show.
Step 2: Identify the legal issues in dispute
Separate the factual disputes from the legal ones. Some position papers contain factual errors that, once corrected, dissolve the legal issue entirely. Others involve genuine legal disagreement about how a provision applies to agreed facts. Each requires a different response strategy.
Step 3: Prepare a written response that addresses both
Your response should be structured, referenced, and precise. It should[^1]:
- Correct any factual errors with supporting documentation
- Challenge the ATO’s legal conclusions with specific statutory references and, where relevant, case law or ATO public rulings
- Address the proposed penalty characterisation directly, including any voluntary disclosure or co-operation arguments that support a reduction
- Set out your position on the shortfall amount, with alternative calculations where the facts support them
A response that simply says “we disagree” without substantiation carries no weight and may be treated as non-engagement.
Step 4: Consider whether to request an independent review
For privately owned groups and SMEs, the ATO’s Independent Review process is available at the position paper stage in certain circumstances.[5] An independent ATO officer, separate from the audit team, reviews the matter before an assessment issues. This is worth considering where the dispute turns on a legal interpretation question and the relationship with the audit team has become entrenched.
Step 5: Know when the matter has outgrown your accountant
Your accountant can help you gather records and understand the financial mechanics. What most accountants cannot do is run a technical legal argument against the ATO’s interpretation of the law, manage the penalty narrative, or position the matter for objection or litigation if the audit does not resolve. We explain this distinction in more detail in our article on why your accountant cannot represent you in a tax dispute.
What Happens If You Do Not Respond
Ignoring a position paper, or providing a response that does not engage with the ATO’s legal analysis, has predictable consequences. The ATO will issue an amended assessment based on its preliminary view. Once an assessment issues, your options narrow: you can lodge a formal objection, and if that fails, escalate to the AAT or Federal Court.[6]
That path is slower, more expensive, and harder to win than a well-constructed position paper response. The position paper stage is where disputes are most efficiently resolved. Our article on the six stages of a tax dispute maps the full process and what each stage costs you in time, money, and leverage.
What the ATO Is Looking For in Your Response
This is where insider knowledge matters. The ATO audit team is not looking for a fight. At the position paper stage, the team has already committed significant resources to forming a view. A response that engages seriously with the facts and law, corrects genuine errors, and demonstrates that the taxpayer has taken the process seriously creates real room for movement.
What the ATO does not respond well to: vague assertions, emotional arguments, or responses that dispute everything without substantiation. The audit team writes a response to your response, and that internal document shapes what happens next. A strong position paper reply can narrow the issues, reduce the proposed shortfall, and shift the penalty characterisation before an assessment ever issues.
We also cover how the ATO selects who to audit in the first place in our piece on the 5 ways the ATO selects who to audit and what makes a business visible to the ATO’s risk systems in is your business already under the ATO’s radar.
After the Position Paper: Your Options
If the ATO issues an amended assessment despite your response, you have formal dispute rights. A formal objection under Part IVC of the Taxation Administration Act 1953 is the first step. The ATO has 60 days to decide an objection for most matters, though complex disputes frequently run longer.[7] If the objection is disallowed, you can escalate to the AAT or Federal Court.
For detailed guidance on what makes an objection succeed, see our article on what to include in an ATO objection and what evidence changes the outcome inside an ATO objection.
The Credential Behind the Advice
Saby+Partners was built around one insight: knowing how the ATO thinks from the inside changes every outcome. Nitin Saby spent years as a Tax Counsel Network Law Interpretation Specialist and Tax Specialist Executive at the ATO before moving to a Tax Principal role at a top-10 CAANZ firm. That background is not a marketing claim. It is the reason our position paper responses engage with the ATO’s internal reasoning in a way that generic advisory cannot replicate.
If you have received a position paper, or if an audit is underway and you want to understand your exposure before one arrives, contact us now to discuss your position. The 28-day window moves fast.
Frequently Asked Questions
What are the common triggers for an ATO audit?
The ATO uses data-matching systems that cross-reference lodgements against employer records, bank accounts, government agencies, and lifestyle asset insurance data. Common triggers for SMEs include financial performance that sits outside industry benchmarks, large or unusual deductions, inconsistent income reporting across related entities, and cash-intensive business models.[8] A voluntary disclosure before audit selection can reduce penalties significantly.
What is the difference between an ATO risk review and an audit?
A risk review is a targeted, desk-based check of a specific item or transaction in your return. The ATO uses it to assess whether a full audit is warranted. An audit is a formal, structured examination of your tax affairs across one or more years, with broader information-gathering powers and the potential to result in amended assessments and penalties. Position papers are issued during audits; the risk review process concludes before that stage is reached.[9]
How long does the ATO take to respond to an objection?
The ATO has a statutory obligation to decide most objections within 60 days of receiving all relevant information. Complex matters, particularly those involving significant shortfalls or legal interpretation disputes, routinely take longer. If the ATO has not decided within 60 days, you may treat the objection as deemed disallowed and escalate to the AAT or Federal Court, though this is a strategic decision that depends on the specific facts.[7]
How often does the ATO audit individuals and SMEs?
The ATO does not publish a precise audit rate, but its compliance program targets sectors and taxpayer profiles identified through data analytics and intelligence. Privately owned groups and high wealth individuals receive tailored engagement, including justified trust reviews and audits, as a matter of ATO compliance priority. SMEs with unusual deduction profiles, related-party transactions, or structures that have not kept pace with business growth carry elevated audit risk.[1]
[1] Australian Taxation Office, “Audits,” ATO website, https://www.ato.gov.au/businesses-and-organisations/corporate-tax-measures-and-assurance/privately-owned-and-wealthy-groups/what-you-should-know/tailored-engagement/audits
[2] International Tax Review, “How to manage an ATO audit,” https://www.internationaltaxreview.com/article/2a68rfy5bw2ycq15plsfv/how-to-manage-an-ato-audit
[3] Velocity Legal, “ATO Dispute Guide: Stages and Processes of a Tax Dispute,” https://www.velocitylegal.com.au/blog/ato-dispute-guide
[4] Australian Taxation Office, “Director penalties,” ATO website, https://www.ato.gov.au/individuals-and-families/paying-the-ato/if-you-don-t-pay/firmer-action-we-may-take/director-penalty-regime
[5] Australian Taxation Office, “Small business independent review,” ATO website, https://www.ato.gov.au/individuals-and-families/your-tax-return/if-you-disagree-with-an-ato-decision/dispute-a-decision/small-business-independent-review
[6] Australian Taxation Office, “If you disagree with an ATO decision,” ATO website, https://www.ato.gov.au/individuals-and-families/your-tax-return/if-you-disagree-with-an-ato-decision
[7] Saby+Partners, “ATO Audit, Review and Objection: What Each One Means,” https://sabypartners.au/ato-audit-review-and-objection-what-each-one-means/
[8] Saby+Partners, “5 Ways the ATO Selects Who to Audit,” https://www.sabypartners.au/5-ways-the-ato-selects-who-to-audit/
[9] Saby+Partners, “Six Stages of a Tax Dispute,” https://www.sabypartners.au/six-stages-of-a-tax-dispute/