Robert Gottliebsen, The Australian, July 6, 2018
There are now clear signs that the Australian small- and medium-sized business community is winning the long hard battle be able to appeal Australian Tax office rulings. We are on the brink of a tax revolution that will boost confidence in the sector that creates 44 per cent of our employment.
Currently small- and medium-sized business can’t afford independent, court-based appeals against an Australian Taxation Office that is riddled with bad culture and which appears to not to be bound by the laws of the land. The ghastly side effects created by this unfair situation are now becoming widely recognised.
I will discuss below some of the alternatives but first let’s look at how the debate has been transformed. Unfortunately, the ATO and its leader Chris Jordan, are still fighting hard to retain their power to be investigator, prosecutor, judge, jury, appeal court and sentencer in small and medium business tax affairs.
The battle for tax fairness in the small and medium business sector started two and a half years ago when I began writing in The Australian that there was an anti-small and medium sized business culture in the ATO. I believed that future employment growth would be in this small- and medium-sized business sector, so it was vital that an independent appeal process be introduced.
In the middle of 2016, I had a conversation with Commissioner Chris Jordan who, not unreasonably, suggested it was unfair to write such articles about ATO culture without examples. I agreed.
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It took almost three months but my first example was in infamous Rod Douglass case where the ATO moved to bankrupt the so-called hero of Port Hedland whose husband-and-wife partnership had been contracted to dramatically improve productivity at the large Australian port. Many more examples were to follow. Many told me I might be right but I had no hope because the ATO was too powerful.
Douglass, unlike most small businesses, had legal help and the ATO surprisingly conceded the Douglass case in the courts. But elements in the ATO would not accept defeat at the hands of lawyers, a journalist and Self-Employed Australia.
And so The ATO tried again in the courts (Douglass’s lawyers have continued with the case as a matter of principle). It’s now established that the tax law on contracts has a “custom and practice” test. But in this second attack the ATO does not appear to have done any work on “custom and practice” so they are now saying to the courts that the people who have done the research work on “custom and practice” should not be allowed to give evidence.
The courts must decide the validity of this legal tactic but it’s a perfect illustration that the ATO anti-small business culture I isolated back in 2016 has not changed one dot and why we desperately need proper independent appeal processes. While I wrote article after article, I could never convince the people whose support was required to change the system. Two events have convinced a significant number of those people that I was right and the ATO was wrong.
The first was the Four Corners broadcast where “ordinary” people could hear and see people, to whom they could relate, tell their ghastly ATO stories. And who will ever forget the national hero and whistleblower Richard Boyle putting his job and future on the line to tell the truth about the ATO?
The second event was a real surprise. When Four Corners went to air, tax commissioner Chris Jordan was out of the country but, more recently, he had the chance to respond before a parliamentary committee. Arguably the most powerful person in the land became emotional and, under pressure, made several obvious factual mistakes.
Soon after the Four Corners broadcast Financial Services Minister Kelly O’Dwyer had asked Treasury to look into the matter.
Treasury are very close to the ATO and it seemed to me like just another ATO whitewash. Thankfully, I was wrong. Treasury had to accept advice from Inspector-General of Taxation Ali Noroozi and from small business ombudsman Kate Carnell. Both have told Treasury the truth.
Readers may remember that in my initial writing I suggested that the Inspector-General of Taxation be given the power to conduct the small- and medium-sized business appeal process. (I now believe that is just one solution)
While I was on holidays, Ali Noroozi told the House Tax and Revenue Committee that there was a need for a separate compensation scheme for taxpayers or, at the very least, an external right of review of compensation decisions by an agency like the IGT.
In addition, enshrining taxpayer rights under the law should also be considered if current principles aimed at protecting them are not adhered to, along with the introduction of an independent advisory board to help improve the ATO’s culture.
The Inspector-General talks in a public service style but what he in effect was saying is that an appeal system was required given the ATO culture and his operation could do it. The fact that the Inspector-General recognised publicly that the ATO culture needed improving was incredibly significant.
Then the small business ombudsman Kate Carnell supported the Inspector-General but went further stating clearly that taxpayers should have an independent body to hear their case when they disagree with the ATO — Hallelujah!
She added that the small business ombudsman and the Inspector-General of Taxation could provide that service — two Hallelujahs — and pointed out that the ATO does not deal with small business taxpayers in a tailored way.
In addition, the ATO does not provide adequate compensation for its own wrongdoing — exactly what I have been writing for all these years and confirmed by Four Corners.
Carnell also underlined that the ATO has unbridled power to take money out of people’s bank accounts and destroy businesses with inflated tax assessments and by withdrawing Australian Business Numbers.
The Carnell conclusions were backed with far more examples than either myself or Four Corners had obtained.
Truth spreads rapidly and emerges in the most unlikely of places—a parliamentary hearing into David Leyonhjelm’s Model Litigant private members bill.
The ATO is anything but a model litigant and Self-Employed Australia’s chief Ken Phillips was invited to give evidence. The conversation switched from model litigation to ATO practices as fascinated senators from both the Coalition and the ALP questioned Phillips on the ATO powers.
I believe there is a very good chance we will get a small- and medium-sized business tax appeals system from the Coalition and if they don’t deliver an ALP government certainly will.
Here are my criteria for such a body:
1) There must be full disclosure by the small business. Evaders must not clog the appeal system.
2) Appointments to the appeal body must NOT be made directly or indirectly by the ATO.
3) There must be no lawyers. It makes it too costly for small business.
4) The rulings must be binding on ATO but small business can resort to the court system if they are unhappy.
5) The appeal process must cover the assessment and collateral damage from that assessment. Currently when a small business gets an assessment with penalties, interest etc banks often pull the plug on the business or directors panic fearing personal liability.
6) The body needs to cover non-return of GST money.
Finally, but very importantly, there is a widespread view in legal circles that this is a unique opportunity to synchronise taxation prosecution with other arms of government.
Under such a set-up, the ATO becomes the investigator and assembles the case while the separate prosecution department responsible to the Attorney-General decides whether to proceed with the case. There still remains the case of the very necessary small- and medium-sized business claims tribunal.