The Australian, January 12, 2018
Australia has taken the first step towards an urgently needed fairer tax system for smaller and medium-sized business.
And if we take the next and vital steps it will be an enormous boost for Australian innovation and small/ medium business plus confidence in a tax collection system that currently is in disarray in this sector.
Full praise to the Minister for Revenue and Financial Services, Kelly O’Dwyer, for taking that first step, but without the subsequent steps we may be worse off.
I have interrupted my holidays because of the extreme importance to the nation of that O’Dwyer first step.
She announced draft legislation to authorise the Australian Taxation Office to disclose business tax debts to credit reporting bureaus “where the businesses have not effectively engaged with the ATO to manage their debt”.
As I will explain below that is effectively handing the ATO an atom bomb to blow up small businesses. In its current state the ATO is in no position to properly handle that extreme power.
But there is a vital qualification in the exposure draft: “The draft legislation requires the ATO to consult with the Inspector-General of Taxation before tax debt amounts are reported to credit reporting bureaus”.
In other words an independent group is being brought in to monitor the ATO. Hallelujah!
This is a monumental decision by Kelly O’Dwyer and if properly implemented is the biggest change to small business taxation in decades and will boost innovation and small business development, which is currently being crippled by bad tax administration. It is far more important than the recent tax reductions.
At the moment the ATO is investigator, prosecutor, judge, appeal judge and sentencer. Such enormous unfettered power always creates power (not bribery) corruption and there is no better example of this happening than the ATO.
My readers know this has been one of my key themes since mid-2016. I have worked with Ken Phillips of Self-Employed Australia in significant parts of the campaign.
Some 20 months ago I came to understand that we had a serious problem in small business taxation and started writing in May 2016 under the heading: “It’s time to help small business take on the tax office”.
Unlike large companies, the small businessperson does not have the money to go to court and finding lawyers to help is very hard. The tax office has total power
The Taxation Commissioner, Chris Jordan, in a face-to-face meeting with me, argued strongly against my contention that the all-embracing power had caused power corruption in the ATO. Jordan genuinely believed I was wrong and, quite properly, asked me to show him real cases. I took up his challenge and agreed to hold fire until I had a case.
In that meeting I stated that the current appeal systems were effectively kangaroo courts and made it clear that what was required was an independent body where small business people could go to put their case without lawyers. It must have power to overrule the ATO. Once ATO people knew they faced external scrutiny they would need to adhere to the law and not create their own law. I suggested that the Inspector-General of Taxation should be given that power.
On September 29, 2016 I took up the commissioner’s challenge and I published the first of many cases—-the infamous Douglass case where the hero of Port Hedland, Rod Douglass, was treated appallingly by the ATO.
To his credit, when he read my explanation, Jordan backed down before the courts but his minions have come again on a different front. But there have been so many more cases. Perhaps the worst have been the ATO attacks on people who won export awards. Businesses taking those awards face high risks — ask Helen Petaia. I invite you to read her story on our web site dated October 29 under the heading “Unfair ATO a dangerous threat to innovation”.
The global accounting giant Deloitte has estimated that the ATO’s actions have caused her damages of between $13 million and $40 million. Queensland is furious and I warned Malcolm Turnbull that when he goes to Brisbane and talks about one of his favourite topics, innovation, he should be prepared for a slow handclap. Had that case gone before the Inspector-General of Taxation the power corruption of the ATO would have been seen immediately and Australia and our tax revenues would have been boosted. Instead Helen Petaia was unfairly sent to the wall.
It’s vital for the Canberra politicians, including those in the government, to understand the incredible powers of the ATO. The ATO undertakes assessments that go back three or four years and adds penalties and interest. The small business has no way of paying. And these assessments by the Australian Taxation Office have incredible power in the debt market. Once a business gets a huge assessment it can’t overturn it and it ranks above all other debts, so unless it has other assets the business has no choice but to close and dismiss its workers. And so when a credit bureau learns of an unpaid ATO assessment then that business will be destroyed. It’s the atom bomb.
If the business genuinely owes the tax I have no problem. But we are seeing time after time that the ATO version of the law is controversial, to say the least, and is often simply wrong. That’s what happens in power corruption.
I am not opposed to the ATO being given the atom bomb provided that first the small enterprise can put its case to the Inspector-General of Taxation, who will make the final decision. That will require new powers of the Inspector-General of Taxation.
If the ATO merely “consults” showing the Inspector-General the results of a kangaroo court hearing and is then allowed to destroy the business then the community backlash against the government and the Inspector-General will be severe.
Kelly O’Dwyer is on the right track but must finish the task and, if she does Australia, and its confidence in the taxation system will be greatly enhanced. Submissions on the draft legislation close on February 9.