What Is an ATO Position Paper and How Should You Respond?

You’ve been through the audit process. You’ve handed over documents, answered questions, maybe had a few uncomfortable meetings. Then the position paper lands.

For most businesses, this is the moment an audit turns into a formal dispute. The ATO has formed a view. They’ve set out what they think you owe and why. And they’re giving you one last real chance to change the outcome before an assessment issues.

How you respond matters more than most people realise.

• Your response shapes the factual record, penalty narrative and litigation posture, the way you engage now influences not just the immediate outcome but also your position if the matter escalates to objection, the Administrative Appeals Tribunal or Federal Court.
• This is a strategic inflection point, not a compliance chore, treat it as the last opportunity to correct factual errors, challenge legal conclusions, and manage downside risk including penalties and Part IVA allegations before the dispute hardens.
• Know when to escalate from accounting to litigation advice, if the position paper flags large exposures, Part IVA, fraud language, shortfall penalties or debt recovery, you need disputes specialists involved, not just your accountant.
• Silence or a weak response becomes part of the record, if you don’t challenge the ATO’s statement of facts or address their legal analysis, those assumptions may carry forward uncorrected into the assessment and any later proceedings.
• The first 72 hours after receiving a position paper are critical, preserve all correspondence, identify who owns the response internally, brief the board if material, and engage advisors to map out strategy and deadlines before you react.

What an ATO Position Paper Really Is

A position paper is the ATO’s written outline of where things stand at the end of their audit work. It sets out:

• The facts as they understand them, drawn from your records and any third-party information they’ve obtained.
• The issues in dispute, the legal questions they think apply, and your contentions (if you’ve made any during the audit).
• Their preliminary view on how the law applies to those facts.
• What they propose to do next, often including an indicative liability, interest and penalties.

It’s not yet an assessment. You can’t formally object to it. But it’s close. The ATO has formed an adverse view, and they’re giving you a chance to respond before they lock in their position and issue an amended assessment.

For some businesses, it’s the first time they see the full shape of the ATO’s case. You might have been drip-fed questions during the audit without understanding where it was heading. The position paper is where they show their hand.

And that’s important, because once an assessment issues, your options narrow. You’re into objection rights, statutory timeframes, and the machinery of formal dispute resolution. Before that happens, you still have some room to move.

Can you actually change their mind? Sometimes, yes. If you can show they’ve misunderstood the facts, overlooked key evidence, or applied the wrong legal test, a well-constructed response can shift the outcome. But even if you can’t avoid an assessment altogether, how you respond now shapes what happens next.

Why Your Response Matters More Than You Think

Most businesses treat the position paper as another step in the audit process. Answer it, lodge it, move on.

That’s a mistake.

Your response is doing three things at once:

First, it’s your last real chance to influence the ATO’s final decision before an assessment issues. If there are factual errors in the position paper (and there often are), this is where you correct them. If they’ve misunderstood your business structure, the nature of a transaction, or the timing of events, you need to fix that now. Once the assessment is issued, those facts harden. Changing them later, in an objection or at the AAT, becomes much harder.

Second, your response shapes the penalty narrative. If the position paper alleges lack of reasonable care, recklessness, or something worse, how you respond influences whether those penalty findings stick. A response that demonstrates you took proper advice, maintained contemporaneous records, and acted in good faith can shift a penalty outcome materially. A defensive or dismissive response does the opposite.

Third, your response sets your litigation posture if this goes the distance. Everything you say (or don’t say) becomes part of the record. If you end up in the AAT or Federal Court, both sides will refer back to this correspondence. The factual assertions you make, the legal arguments you run, the evidence you rely on, all of it gets scrutinised. If you’ve been careless, contradicted yourself, or made admissions you didn’t need to make, you’ll pay for it later.

So no, this isn’t just about ticking a box. It’s about controlling the narrative, protecting your position, and managing the downside if the dispute escalates.

Reading the Position Paper: What to Look for First

When the position paper arrives, don’t just skim the summary and hand it to your accountant. Read it properly. Look for the pressure points.

Start with quantum. What’s the proposed liability? Is it material to your business? If the number is large enough to threaten cash flow, trigger debt covenants, or require board-level decisions, you need to treat this differently from a minor technical dispute.

Next, check the periods affected. Is this one year or multiple years? If the ATO is alleging a pattern of behaviour over time, that changes the nature of the dispute. It’s not a one-off mistake. They’re saying you’ve been getting it wrong repeatedly, and that carries penalty and strategic implications.

Look at the language around penalties. Does the paper say “lack of reasonable care”? “Recklessness”? Anything that hints at intentional disregard or fraud? If so, this is serious. The ATO is not just adjusting your tax. They’re making findings about your conduct, and those findings can follow you into later disputes, director penalty notices, and even criminal referrals in extreme cases.

Check for Part IVA. If the position paper alleges that a transaction or arrangement was entered into for the dominant purpose of obtaining a tax benefit, you’re in anti-avoidance territory. Part IVA disputes are fact-intensive, legally complex, and they tend to go all the way to court. They also attract reputational risk. If Part IVA is on the table, you need to be thinking about litigation strategy from day one.

Look for reliance on third-party data. Has the ATO obtained information from banks, suppliers, customers, or other government agencies? If they’re building their case on data you didn’t provide, you need to check whether that data is accurate and whether it’s been interpreted correctly. Third-party information often looks authoritative, but it can be incomplete or misleading.

Finally, who inside your business needs to see this? If the exposure is material, the CFO and CEO need to know. If it’s serious enough, the board or audit and risk committee should be briefed. This isn’t just a tax compliance issue. It’s a governance issue. Directors need to understand the potential liability, the dispute options, and the decisions they’re being asked to make.

How to Respond to an ATO Position Paper

Crafting a response to an ATO position paper is not about writing an angry letter or a vague “we disagree”. It’s about building a structured, evidence-based reply that addresses the ATO’s case methodically and positions you for whatever comes next.

Separate Facts from Law

Start by identifying where the position paper gets the facts wrong. This is critical. If the ATO has misunderstood the sequence of events, the parties to a transaction, the purpose of a payment, or the nature of a business relationship, you need to correct that with precision.

Don’t just assert the correction. Back it up. Attach board minutes, contemporaneous emails, contracts, invoices, whatever demonstrates the actual facts. The ATO’s position paper will have been built on the documents and explanations you gave them during the audit. If those were incomplete or ambiguous, now is the time to fill the gaps.

Once you’ve dealt with the facts, address the legal analysis. If the ATO has applied the wrong test, misread a provision, or ignored binding authority, say so. But be careful. Legal argument without factual foundation doesn’t persuade anyone. If you’re challenging the ATO’s application of the law, you need to show why the correct legal test, applied to the actual facts, leads to a different outcome.

Be Precise, Documented and Unemotional

This is not the place for grievance. The ATO auditor might have been difficult. The process might have felt unfair. The timing might have been terrible. None of that belongs in your response.

Stick to facts, evidence and law. Write as if the response will be read by a judge in three years’ time, because it might be. Keep the tone professional, measured and unemotional. Every assertion should be backed by a document or a clear explanation. Every argument should be structured logically.

If you need to acknowledge a mistake, acknowledge it. If the position paper is right on one issue but wrong on another, say so. Credibility matters. A response that fights everything, even the parts the ATO clearly got right, loses authority. A response that concedes where appropriate and challenges where justified carries weight.

Avoid Over-Disclosure While Still Engaging Constructively

One of the hardest judgements in responding to a position paper is how much to say. You need to engage with the ATO’s case, but you don’t want to volunteer information that weakens your position or creates new lines of attack.

If the position paper asks a question or raises an issue you haven’t addressed before, think carefully before you answer. Could your answer undermine a legal argument you might need to run later? Could it create an admission that’s hard to walk back? Could it open up a new audit issue?

This is where legal advice becomes essential. Your accountant knows the technical tax position. A disputes lawyer knows what’s likely to matter if this ends up in litigation and what you should (and shouldn’t) put on the record now.

The goal is to engage constructively without arming the ATO with material that makes your position worse.

Who Should Be Involved: Accountants, Lawyers and the Board

Not every position paper needs a litigation team. But you need to know when to escalate.

Your accountant or tax advisor can handle most of the technical work. They’ll analyse the ATO’s calculations, check the application of the relevant provisions, and draft the factual and technical response. For straightforward disputes, a difference of opinion on deductibility, timing, characterisation, that’s often enough.

But there are clear escalation triggers where you need disputes lawyers involved:

• Large exposures. If the proposed liability is material to your business (however you define that, $500,000, $5 million, enough to hit covenants or require board approval), you need someone thinking about litigation strategy, not just the tax technical position.
• Penalties. If the position paper alleges recklessness, intentional disregard, or fraud, you’re not just disputing the tax. You’re defending findings about conduct that could follow you into other disputes or regulatory action.
• Part IVA. Anti-avoidance allegations are almost always going to court. If Part IVA is on the table, you need to be planning for that from day one, and that means litigation lawyers.
• Third-party evidence or data-matching. If the ATO is relying on bank data, supplier records, or information from other agencies, you need someone who understands how to challenge that evidence and what standards apply if it ends up before a tribunal or court.
• Debt recovery threats. If the position paper hints at issuing the assessment quickly and pursuing payment or statutory demands, you’re facing potential insolvency risk. That’s a boardroom issue, and you need both tax and commercial litigation advice.

Then there’s governance. If the exposure is significant, your board or audit and risk committee needs to be briefed. They need to understand the potential liability, the dispute options, the likely costs and timeframes, and the risks if you get it wrong. Directors have duties here. If a material tax dispute is unfolding and they’re not being told, that’s a governance failure.

Document the decisions you make. If the board decides to contest the ATO’s position, minute that decision and the reasons for it. If you’re taking advice, record who you’ve engaged and what they’ve recommended. If the dispute escalates, you’ll want to be able to show you took proper advice and made informed decisions.

Finally, think about privilege. Legal advice from your lawyers is privileged. Advice from your accountant usually isn’t. If you’re sharing sensitive strategies, legal analysis, or litigation planning, route that through your lawyers so it stays protected. Don’t assume everything in the response process is confidential. Assume it will be discoverable unless you’ve taken steps to protect it.

What Happens After You Respond (or Don’t)

Once you’ve lodged your response, the ATO will consider it. Sometimes they come back with questions or a revised position. Sometimes they stick to their original view and issue an assessment.

If they issue an assessment, you have objection rights. You’ll need to lodge a formal objection within the statutory timeframe (usually 60 days for most taxpayers, longer for some). The objection goes to a different part of the ATO, and they’ll review the audit decision and your objection. If they disallow the objection (in whole or part), you can take the dispute to the Administrative Appeals Tribunal or Federal Court.

That process can take years. AAT cases routinely run 18 months to 3 years from lodgement to hearing. Federal Court can be longer. During that time, the assessment remains payable unless you can negotiate a payment arrangement or get a stay. Interest keeps accruing on the unpaid amount. For large disputes, that interest can become a significant problem.

If you don’t respond to the position paper, the ATO will usually proceed anyway. Your silence won’t stop them issuing an assessment. In fact, it can make things worse. If you haven’t challenged their statement of facts or their legal analysis, those assumptions carry forward unchallenged. When you later object or litigate, the ATO will point to the position paper and say, “You had the chance to respond. You didn’t. These are the agreed facts.”

There are some independent review mechanisms inside the ATO, depending on the type of audit and the size of your business. But those processes don’t always require you to respond to continue. They can proceed on the material already on the file.

So don’t assume that ignoring a position paper buys you time or makes the problem go away. It doesn’t. It just makes your position weaker when the dispute continues.

Common Mistakes Businesses Make with Position Papers

The most common mistake is treating the position paper as just another piece of audit correspondence. It’s not. It’s a formal document that sets out the ATO’s case, and how you respond has material consequences.

Another mistake is responding emotionally. Writing a letter that vents frustration about the audit process, the auditor’s conduct, or the unfairness of it all might feel satisfying, but it achieves nothing. It undermines your credibility and distracts from the substance. Keep it professional.

Some businesses make untested admissions. They concede points they don’t need to concede, either because they think it will make the ATO more reasonable or because they haven’t thought through the implications. Every concession becomes part of the record. Don’t give ground unless you’ve analysed the cost.

Others ignore the penalty issues. They focus on the primary tax liability and assume the penalties will sort themselves out. They won’t. Penalty findings often hinge on whether you can demonstrate reasonable care, proper record-keeping, and reliance on advice. If you don’t address that in your response, you lose the chance to shape the narrative.

Allowing the ATO’s statement of facts to go unchallenged is another common error. If the position paper contains factual errors or omissions, and you don’t correct them, those “facts” harden. Challenging them later becomes much harder. The ATO will say, “This is what we put to you. You didn’t dispute it. It’s accepted.”

And finally, missing deadlines. If the ATO gives you 28 days to respond and you miss it, you lose leverage. Extensions are usually available if you ask in advance and give a good reason. But if you just let the deadline pass, you’re signalling that you’re not taking this seriously.

When a Position Paper Signals the Need for Litigation Strategy

There are clear moments in a tax dispute where you need to stop thinking like a taxpayer trying to resolve an audit and start thinking like a litigant preparing for court.

A position paper is one of those moments.

If the position paper flags any of the following, you need disputes lawyers involved immediately:

• Part IVA allegations. If the ATO is alleging that a transaction or arrangement was entered into for the dominant purpose of obtaining a tax benefit, you’re in anti-avoidance territory. Part IVA disputes are almost always litigated. The legal tests are complex, the factual inquiry is intense, and the stakes are high. You need to be planning for AAT or Federal Court from day one.
• Fraud or evasion language. If the position paper uses terms like “intentional disregard”, “false or misleading statements”, or “scheme to defraud”, this is no longer a technical dispute. You’re facing potential criminal referrals, director penalty exposure, and reputational damage. You need both tax disputes and commercial litigation advice.
• Shortfall penalties at the higher end. Penalties for recklessness or intentional disregard are significantly higher than penalties for lack of reasonable care. If the position paper is proposing high-level penalties, that’s a finding about your conduct, and it needs to be defended properly.
• Reliance on contested third-party data. If the ATO’s case is built on bank data, third-party records, or information from other agencies, and you dispute the accuracy or interpretation of that data, you’re facing an evidence fight. That’s litigation territory, and you need lawyers who know how to challenge evidence before a tribunal or court.
• Debt recovery threats or statutory demands. If the position paper hints that the ATO will issue the assessment quickly and pursue payment, including potentially issuing a statutory demand, you’re facing insolvency risk. If a statutory demand is served and you can’t pay or set it aside within 21 days, you’re presumed insolvent. That’s a boardroom crisis, and you need both tax and insolvency advice.
• Material quantum. If the exposure is large enough to threaten the viability of the business, strain cash flow, or require asset sales to pay, this isn’t a dispute you can afford to lose. You need a litigation strategy that maximises your chances at each stage and manages the downside if you don’t succeed.

In those situations, your response to the position paper needs to do more than address the ATO’s technical analysis. It needs to set you up for litigation. That means:

• Locking down the factual record in your favour.
• Identifying the key legal issues and preserving your arguments.
• Building an evidence base that will withstand scrutiny in the AAT or Federal Court.
• Managing penalty exposure through a proper reasonable care narrative.
• Protecting privileged material and ensuring your litigation strategy isn’t disclosed.

This is the point where you transition from dispute resolution to dispute management. The goal is no longer just to persuade the ATO. The goal is to position yourself to win if this goes all the way.

What to Do in the First 72 Hours After Receiving a Position Paper

The first few days after a position paper lands are critical. This is when you set the tone, allocate responsibility, and avoid the mistakes that come from panic or delay.

First, preserve everything. Collect all the audit correspondence, every email, every document request, every response. Make sure it’s stored securely and indexed properly. If this dispute continues, you’ll need to be able to reconstruct what was said, when, and by whom.

Second, identify who owns this inside your business. Is it the CFO? The head of tax? General counsel? Whoever it is, they need to take responsibility for coordinating the response, managing advisors, and keeping the board informed. This can’t be something that falls between the cracks.

Third, brief the CEO and board if the exposure is material. Don’t wait until you’ve fully analysed the position paper. Give them the headline: the ATO has issued a position paper, here’s the proposed liability, here are the key issues, here’s the timeframe for responding. They need to know this is happening, and they need to know you’re managing it.

Fourth, engage with your advisors. If you already have an accountant or tax advisor handling the audit, bring them in immediately. If the position paper contains litigation triggers (penalties, Part IVA, large quantum, fraud language), engage disputes lawyers as well. Don’t wait. The earlier you get proper advice, the better your response will be.

Fifth, map out the response strategy and deadlines. How long do you have to respond? What information do you need to gather? What additional evidence or expert reports might you need? What are the key issues you need to address? Build a project plan and stick to it. Rushing a response in the last 48 hours is a recipe for mistakes.

And finally, don’t react. It’s tempting to fire off an immediate response, especially if the position paper feels unfair or inaccurate. Resist that temptation. Take the time to analyse the ATO’s case properly, gather your evidence, and build a structured, thoughtful reply.

The businesses that handle position papers well are the ones that treat them as strategic moments, not administrative chores. They move quickly, but they don’t panic. They engage the right advisors early. They brief the board. And they build responses that stand up if the dispute continues.

Disclaimer: This article provides general information only and does not constitute legal or tax advice. Every tax dispute is different, and the right approach depends on your specific facts and circumstances. If you’ve received an ATO position paper, you should obtain professional advice tailored to your situation before you respond.