Self Employed Australia

"Everyone needs an Advocate"

“Everyone needs an Advocate”

Self-Employed Australia

Regulation-lovers with a ‘solution’ desperately seeking a problem—Gig it!!!

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Monday, August 05, 2019

Since the Global Financial Crisis, unemployment has dropped to low levels in most of the developed world at least. That’s fantastic. It needs to continue.

One of the important factors in this positive trend seems to be the evolution of work arrangements that enable quick responses to fast-moving markets and consumers. Flexible work creates work! But this gets regulation-lovers worried. They reckon that if work isn’t controlled through government regulation, there’s got to be something wrong. Currently their focus is on the so-called ‘gig’ economy. Apparently, it’s a big ‘problem’ that needs a solution.

We’re intensely interested in the ‘gig’ issue because ultimately the regulation-lovers’ push is about squashing the right of people to be self-employed. And that’s a right that we love!

There are heaps of inquiries and reports. As examples, there are questions over Uber (ride sharing), Facebook, AirBNB and so on generating big media coverage. But here’s a core question. Just how many people are earning their income through ‘gig’ engagement’? How big is the issue?

We’ve pulled together data from reliable sources covering the United States, the United Kingdom and Australia. Here are the summary tables.

Get this. For all the big noise about the ‘gig’ economy the number of people using ‘gig’ engagement as their income source is tiny. The stats show that:

  • Only 1 to 1.8 per cent of workforces are involved in ‘gig’ work but, of those,
  • 0.63 per cent to 0.88 per cent are in fact ‘regulated’ employees.

And significantly

  • For 56 per cent, gig work is less than 15 per cent of their income. (UK)
  • 69 per cent earn less than £1,000 a year from gig work. (UK)

The results are similar in the USA and Australia.

That is, for the bulk of people using gig engagement, it’s pocket money or top-up ‘nice-to-have’ income, but not core income.

But it’s important also to distinguish between ‘gig’ and other self-employed work. The Centre for Research on Self-Employment (CRSE) in London has produced a great research report on this. The report looks at the freelancer side of self-employment and finds that:

  • 85 per cent of freelancers undertake project-based and ‘portfolio’ work.
  • Only 15 per cent are gig workers.

This is consistent with our summary table.

What’s more, CRSE identifies that the freelance sector generates some £140-145 billion of economic output for the UK economy. It’s major stuff. Here are some key extracts from the CRSE report.

An important finding by CRSE identifies skills as the key issue relating to income levels, not the nature of the contract:

…high skilled gig work generates higher quarterly income than equivalent employee work. It seems that skill rather than the nature of the employment contract is the most important determinant of a worker’s income…

Why are we concerned? Too often we’ve seen attempts by worker regulation-lovers to use ‘invented’ problems to try and kill off self-employment. It’s a campaign that’s been ongoing since around the 1990s. Its current rebirth is ‘gig’ focused.

Regulations are needed for real problems. But let’s not invent problems. We want a fact-based debate. Self-employment in its many forms—freelancing, gig, traditional shop-keeping, trades and so on—all make an important mix for job creation, economic activity and personal income creation. Let’s not kill off the good stuff!

We ask MPs: ‘Stop this ATO bully boy tax Bill’

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We rushed into action late Saturday night when we discovered that a really scary tax Bill was listed for a vote in Parliament this week.

The new law is supposed to stop illegal phoenixing. (That’s when someone sends their business bankrupt then ‘rebirths’ it under another name. They leave victims with huge debts.) But this new law would instead empower the ATO to:

  • Do a forward estimate on how much a business owed in GST.
  • Demand payment whether the ATO’s estimate was correct or not.
  • Deny someone a tax refund (say on overpaid income tax).
  • Make company directors personally liable for the estimated GST.

This has nothing to do with stopping phoenixing. It is instead a further cunning power grab by the ATO. This would give the ATO new powers to ramp up its small business bullying campaign.

On Sunday we wrote to the government and all MPs and Senators asking them to stop this bad law. Robert Gottliebsen wrote in The Australian condemning the law. We spent Monday and Tuesday in Parliament talking with MPs and Senators asking for the law to be pulled. We’ll let you know what happens.

But, while this was occurring, the ATO created news coverage by saying that it is introducing new ‘procedural safeguards’ to prevent ATO bullying of small business people. The article stated that the ATO is to “…overhaul its internal culture to avoid a repeat of the embarrassing ‘garnishee’ scandal that damaged its reputation among small-business taxpayers.”

Give us a break!!! The ATO puts out PR spin saying that it is going to stop its bullying culture and behaviour. Yet at the same time it is seeking to sneak through Parliament new laws that will increase its bullying powers. The ATO is engaging in an outrageous community, media and parliamentary con. It’s got to stop.

Quite recently we praised the ATO for a new, independent appeals process. We’ll continue to praise when we see good things from the ATO. But we’re not going to fall for the ATO’s two-faced con.

If the ATO is serious about addressing its bullying—particularly over garnishee issues—then prove it! It should drop its persecution and prosecution of ATO whistleblower Richard Boyle. He exposed the ATO’s garnishee bullying behaviour, the very behaviour the ATO says it now wants to stop. For exposing this the ATO is now trying to send Richard to jail for 161 years. The ATO’s credibility is in tatters. Its behaviour is like that of the worst bank behaviour.

US Congress and Trump agree. Discipline the IRS to prevent taxpayer abuse. Message for Australia

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1 July 2019 proved an historic day for US taxpayers when President Trump signed into law the Taxpayers First Act.

The Act is intended to bring discipline to the US tax agency (IRS) after years of strong evidence of both its administrative incompetence and systemic abuse of taxpayers, particularly small business people.

The Bill passed Congress with support from all political parties.

There’s a massive lesson here for Australia. If we’re to be internationally competitive, we must bring justice and the rule of law to the way the Australian Taxation Office administers tax.

In Australia, particularly over the last 18 months, the evidence of ATO abuse of small business people has mounted and is overwhelming. See, particularly, the Four Corners program, ‘Mongrel Bunch of Bastards’.

The US Taxpayers First Act has specific provisions to protect small business owners from IRS seizures of their bank accounts. There is major evidence that the IRS has been wildly abusing its powers to seize bank accounts in cases where there was no evidence of small business taxpayers avoiding tax. The stories here strongly resemble those we see with the ATO garnisheeing bank accounts in Australia. Read the Small Business Ombudsman’s report on the ATO’s garnishee abuse.

Of the twelve-or-so measures in the US Taxpayers First Act, the following six are highly relevant to the sort of things we should be doing in Australia to reform the ATO.

  1. Greater Access to Independent Review: Guarantees taxpayer access to an independent appeal on an audit decision. Before an appeal the IRS must hand over to the taxpayer the taxpayer’s case file.
  2. Limited Seizure of Property: Property seizure limited to illegal cash transactions or concealing criminal activity. Post seizure and hearing requirements to protect taxpayers. (***Highly relevant to the ATO garnishee issue)
  3. Listening to the Taxpayer Advocate. The USA has an independent Taxpayer Advocate (NTA), a bit like the Australian Inspector-General of Taxation (IGT). The US law would grant the NTA significant new powers to give the IRS enforceable directives on taxpayer cases.
  4. Improved customer service: IRS required to adopt best practices of private sector customer-service providers.
  5. Easier Settlement Procedures: No fees by IRS if a settlement deal is done with the taxpayer.
  6. Earlier Notice of third-party questioning: The IRS must notify a taxpayer before it makes enquires of third parties about your tax (for example, a customer).
In 2018 we put together a position and discussion paper for a package of reforms of the ATO. Nothing in our reform package involves reducing the ATO’s powers to collect tax. It’s about ensuring checks and balances and the proper application of the rule of law to the ATO’s powers and behaviour. Since the federal election outcome we have started our advocacy campaign to make progress with ATO reform. We will release more on this over the coming weeks/months.

Reflections on an incompetent ATO—ABNs & Gig stuff

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Friday, June 28, 2019

Earlier this week we discussed the history of Uber in its global legal battles to have its drivers accepted as independent contractors. The Uber battle is at the forefront of the gig ‘question’.

Today we focus on the Australian Taxation Office and its incompetence (from our experience) in assessing employee vs independent contractor status. The ATO should learn from a significant Uber legal decision in Australia. It probably won’t though

The issue is important because the ATO has the unrestrained power to destroy the business of self-employed individuals simply by denying individuals their Australian Business Number. It can do this by declaring an independent contractor to be an employee.

This is because under the ABN legislation a person is entitled to an ABN if they are ‘carrying on an enterprise,’ a business being a ‘Profession, trade, employment, vocation or calling.’ But a business does not include an occupation as an ‘employee’.

Under this definition, self-employed people should easily qualify for an ABN because the definitions are so broad, intentionally so we believe. However, the ATO can legitimately deny a person an ABN if the person is an employee at common law.

We have sighted ATO assessments of ‘employment’ when the ATO has denied or withdrawn people’s ABNs. The ATO did this to some 17 individuals in late 2017. The story of the case is here. The ATO was eventually pressured into returning the ABNs to these people.

We have sighted the ‘employment’ assessment done by the ATO in this case. On our assessment the ATO’s process was amateurish and incompetent at best and at worst was manipulated by the ATO to achieve its predetermined view that the independent contractors were/are employees. By these actions the ATO strips itself of its legitimacy.

One of the ATO’s current obsessions is the gig economy and an apparent determination to deny that gig platforms legitimately use self-employed independent contractors. If the ATO is to have legitimacy in this area, it must demonstrate that it follows proper common law processes in undertaking its assessments.

Fortunately, there are some authoritative recent Australian examples that the ATO should replicate if it is to have legitimacy in this area. We present and analyse the major Uber case here.

Will the ATO fix its incompetency? On past experience, probably not.

Hysterical reaction to Uber (gig) drivers not being employees. ATO wake-up call

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Tuesday, June 25, 2019

Earlier this month the Fair Work Ombudsman released a statement that, after a two-year investigation, it has concluded that drivers working through Uber are not employees.

The Transport Workers Union described the decision as ‘…devastating for workers in the gig economy’. One academic said the decision was ‘very disappointing’.

We disagree. The Fair Work Ombudsman’s decision is consistent with a highly detailed investigation and legal ruling on Uber drivers by the Fair Work Commission in December 2017.

We have a message for the labour movement and its apologists: Wake up! The world has changed. By their actions people demonstrate that they want to be independent and control their own working lives. The worker vs bosses war is irrelevant to most people. Read the tea leaves from the recent federal election. You’re flogging a horse that will kick you! Our message is equally directed to the Australian Taxation Office: We reckon that you’re breaching the law!

So, after getting our ‘rant in reply’ out of our system, let’s look at the facts.

There’s a big push from the Victorian Labor government, the unions, some academics and many in the federal bureaucracy (particularly the ATO) to clamp down on or stop the gig economy. They have similar motivations in our view. They don’t like, understand or accept that independent work can actually exist. They are obsessed with controlling all work.

But independent work is a legal, economic and behavioural fact discovered and found in clear, established processes of investigation. There is no mystery or confusion about this. Unless it’s confusion created by those who want to stop it. (Oooops. I think we are still ranting!!!)

The Uber decision matches those facts. Proper investigative process was followed by the Fair Work Commission and, it would appear, the Fair Work Ombudsman. On the basis of the facts, Uber (gig) drivers are engaged in independent work.

It’s important to base analysis on facts. We’ve put together an analysis of the facts and issues relating to the Uber/gig economy issue. It covers:

And we have a message for the ATO. In our experience the ATO demonstrates gross incompetence in its investigations and analysis of who is an ‘enterprise’ for the purposes of ABN allocation. The ATO needs to learn from the Fair Work Commission and the Fair Work Ombudsman and become competent in this area.

Goodness. Shock! We’re praising the ATO. That’s not like us!!!

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It probably had to happen at some stage! For all the criticism we direct at the ATO (all warranted) there had to come a time when we could direct some praise!

You’ll be aware of our intense campaigning against the ATO for bad treatment of small business people. We’ve now had a very good experience, however.

ATO Independent Review

Last year, in partial response to the media coverage of bad ATO behaviour, particularly the Four Corners program ‘Mongrel Bunch of Bastards’ the ATO started a trial ‘Independent Review’ process for small business disputes.

We have just finished supporting and assisting a small business person through this process. We can’t mention the case or specific details but this person accepted that he owed the ATO money. The dispute was over how much was owed. The ATO was claiming about three times the amount we assessed he owed. There wasn’t any tax avoidance or attempt to avoid, rather a series of situations that led to a debt.

We have been involved with many ATO internal ‘alternative dispute resolution’ processes over several years. Frankly, until now, we’ve found these processes to be ‘con-like’ where the ATO used the processes to press their massive superior power and to ‘cook small business people slowly’.

This Independent Review process has been totally different. We found the process genuinely independent and focused on the facts of the case. That’s all we’re asking. The ATO officers did not play any power games or spin, mislead or seek to lie to us and the person we were supporting. The ATO officers were firm, diligent and, yes, nit-picky in seeking factual evidence. And that’s what we’d expect and ask from the ATO officers in doing a professional job.

The outcome is that the small business person won some points but lost others. That’s not unreasonable. Some of the issues in dispute were quite involved. What we were impressed with was that the review was a genuine review. We praise the ATO officers who conducted the review and the senior officers who are directing the process. This is a very big step in the right direction. We hope this continues and moves forward.

But one good experience does not dampen our campaign for major ATO reform to be implemented through legislation. We’ll explain this in future news alerts.

ATO aggression against whistleblowers

One of the ATO’s behaviours that must change is its abuse of whistleblowers. The Age/SMH have a major feature today on Richard Boyle who faces 161 years in jail for telling the truth about the ATO’s abuse of small business people. Richard’s story is covered on the ABC’s 7.30 Report. It’s worth watching.

ATO exposed again! Systemic mistreatment of small business people

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It doesn’t seem to stop. The ATO continues to deny that it does anything wrong, but official reviews and reports keep slamming the ATO. We listed in early April this year the string of parliamentary and other reports calling for urgent reform of the ATO.

This time it’s the Small Business Ombudsman reporting on the ATO’s enforcing debt even while the debt is being challenged in the Administrative Appeals Tribunal. The report finds that the ATO does this on 12 per cent of occasions. This destroys the small business and their ability to challenge the alleged debt. The Ombudsman severely criticizes the ATO and calls for legislative reform.

Here are the Ombudsman’s:

The report refers to

  • “…an inconsistent and undisciplined approach to debt collection by the ATO.”

And quotes an anonymous submission from a current ATO employee saying

  • “The imbalance of power and unconscionable conduct of the ATO leads most to relent as they don’t have the resources to continue.”

The Ombudsman calls for legislative reform to require “mandatory external oversight”. We totally endorse the Ombudsman’s call.

A year ago we released one of our reports on the ATO calling for reform—The Power to Audit is the Power to Destroy. We called for:

  • The ATO to be divided into two separate authorities, one for tax collection and auditing; the other for objections and appeals.
  • The Commissioner-with-all-powers concept be changed, so that each authority is headed by a CEO answerable to a board. (Similar to ASIC, ACCC, etc.)
  • A Small Business Tax Tribunal to be established.
  • Transparency to be required on actual debt and prosecution management.
  • Disputed debts cannot be collected until disputes are settled.
  • Capping of penalties.
  • Judicial oversight of ‘fraud’ action.
  • Strengthening of the Administrative Appeals Tribunal.
We’re delighted that the Morrison government has implemented the Small Business Tax Tribunal and that Labor has endorsed this. But we need this locked into legislation. This new Small Business Ombudsman report strengthens the need for legislative action.
After this election, whoever governs, legislative reform of the ATO must be an item high on the agenda. The integrity of the tax system relies on tax collection being fair and being seen to be fair.

ATO – Mongrel Bunch of Bastards – one year on

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It is one year to the day since the Four Corners show ‘Mongrel Bunch of Bastards’ was aired. This ABC production exposed the ATO’s mistreatment of small business people. Watch the show here.  It continues to be relevant.

So, what has happened in 12 months?

Still the ATO publicly denied any problems. Then Federal Labor called for reform to the ATO’s internal procedures. This was an important step forward.

However, while still continuing to deny problems the ATO:

  • Made significant changes to key personnel.
  • Effectively implemented the ALP’s call for a new internal review processes through an ‘Independent 2nd Commissioner’.

Most importantly

  • The Morrison Government established a new Small Business Tax Tribunal which is a breakthrough for small business people. And the ATO has cooperated in the fairer structure of this new tribunal.

We’re not really that interested if the ATO wants to maintain its ‘nothing to see here folks’ approach. It can continue whatever media line it chooses. What’s important is whether there are fairer treatment processes in place for small business people. And there are—both through the Small Business Tax Tribunal and through the new ATO internal review process. But both these processes need to be tested to see if the practice matches the conceptual design.

There is more to be done. We can expect that the ATO ‘willow tree’ will bend back into shape if the ‘winds’ of media and public scrutiny stop blowing. We must work hard now to get the Small Business Tax Tribunal and other measures locked into legislation. This will take several years of effort.

The ‘What’ and ‘Why’ of the ATO small business reform

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We wrote yesterday to thank the many players involved in efforts to reform the ATO’s treatment of self-employed, small business people. Today we explain what that reform is and why it’s important.

The reform is the creation of the Small Business Tax Tribunal (SBTT) that started on 1 March. It’s a division within the Administrative Appeals Tribunal. There are two key documents to understand:

The importance is that for the first time there will be some balancing of the current massive power imbalance between the ATO and small business people.

The ATO wields total power over the self-employed in the processes of tax assessment, appeals and enforcement. The outcome is that the ATO effectively runs a kangaroo court system which, in our assessment, uses process and legal trickery. In doing this the ATO is unanswerable and unaccountable. This is the core reason for the abuse and mistreatment of small business people evidenced during 2018 in the media and in parliamentary and departmental inquiries and reports.

The Small Business Tax Tribunal is intended to (and should to some degree) ‘even out’ this power imbalance. Note, that there is no change to the legal obligations of people to pay tax or the right of the ATO to enforce those obligations.

The key important reform features are as follows:

  • The SBTT is external to, and independent of, the ATO.
  • Small business people can trigger a referral to the SBTT at any time in their dealings with the ATO.
  • The ATO will not enforce a debt while a matter is before the SBTT, except in extreme cases.
  • The ATO will not ordinarily use external lawyers. If they do use external lawyers, they will fund the small business for lawyers to the same amount as the value of the lawyers the ATO uses.
  • The SBTT will give a decision within 28 days of a hearing.
  • If the ATO appeals an SBTT decision to the Federal Court, the ATO will fund the small business person’s lawyers.

It is important to note that the SBTT has not been created by legislation. We hope that legislation will follow. But at this stage the ATO has agreed to this levelling of power. We have to take this as a mark of goodwill by the ATO and a genuine intention by it for fairer treatment of small business people.

There’s more to be done, however. The ATO can use internal lawyers without funding the small business person’s lawyers, thereby retaining a power advantage to them. But we’re moderately hopeful that this too might be addressed.

Here’s the practical reality of small tax disputes. The bulk of issues are factual. For example, is a claimed expense a genuine tax deduction? For the most part these can be sorted sensibly without lawyers in the SBTT. Lawyers too often get in the way of such practical investigations (apologies to our lawyer friends!) Often, of course, tax law can be complex and lawyers are needed. For example, when is someone ‘working for a result’? Here interpretation of legislation and case law is needed (unfortunately).

The importance of the SBTT is that:

  • It limits the use of lawyers.
  • Where lawyers are needed, the small business person will have equal representation.

As stated above, more is needed, but what has been achieved so far is a big step to a fairer system and one that can be seen to be fair.

Tomorrow we’ll inform you of a major development on the ABN and contractor definition front.

Watch out! Here comes a cascade of thanks. Major ATO reform for the self-employed seems to be here

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Okay, get ready for it. In this update we’re going to praise a lot of people.

The reason is that it’s looking as though the sort of reform we need from the ATO in its treatment of small business people is actually happening. See this article in today’s Australian.

It’s all to do with this document released on the ATO’s website last Friday (22 March). Frankly, we’re surprised how far this is developing. We’ll explain this in detail tomorrow with the key being the operation of the Small Business Tax Tribunal.

But today we’re going to congratulate the players in this process of change. There’s a lot of them. And it’s almost a study in how an effective democracy works!

From about 2015 we’ve been gathering case studies of small business people who’ve been badly treated by the ATO. We started publishing their stories and analysing the ATO’s tactics. See here.  This was picked up by mainstream media, in particular by Robert Gottliebsen (The Australian) and Adele Ferguson (Fairfax/ABC) and then the team at Four Corners (ABC). After the Four Corners show ‘Mongrel Bunch of Bastards‘ (April 2018) the stream of media stories about the ATO’s small business mistreatment became a flood.

Parliament became involved. A string of Parliamentary hearings had the ATO being called to answer. Mistreated small business people gave evidence. The Coalition Government commissioned departmental inquiries. These provided detailed ‘inside’ analysis. The ALP responded by calling for ATO reform and proposed a model for change. Again, see here.

To this point, until late 2018, the process had involved substantiating that the ATO mistreats self-employed, small business people.

Who to thank?

  • Those courageous small business people prepared to have their stories told in public. These include Rod Douglass, Peter Fortunatow, The Pike family and their ABN contractors, Michael Shord, Helen Petaia and more. They prove the point that bad things happen if good people don’t speak out. Good on the good people!
  • The Fourth Estate – Robert Gottliebsen, Adele Ferguson, the Four Corners team and the many journos at ABC, Fairfax and News; Ross Greenwood (Macquarie Radio), Ten News, Radio Cairns, Smart Company, Leon Byner (Radio 5AA) and more. Let’s be clear. Without the persistence of these quality Fourth Estate players, this change would not be happening.
  • The many nameless ATO people who privately told us the truth. Massive thanks and admiration to ATO whistleblower Richard Boyle. He’s been prepared to have his career trashed for the sake of the truth. He’s a real hero and he needs justice from the ATO.
  • The Federal Parliamentarians. Lots of them, but particularly MPs Chris Bowen (ALP), Andrew Leigh (ALP) and Jason Falinski (LP), as well as Senators David Leyonhjelm (Liberal Democrats), Ian Macdonald (LNP) Louise Pratt (ALP), Jim Molan (LP), Eric Abetz (LP) Kristina Keneally (ALP) and many more. Yes, our parliamentarians do work hard and are concerned about the state of our society.
  • Government agencies with the absolute standouts being the Inspector-General of Taxation under the leadership of Ali Noroozi and the Small Business Ombudsman under Kate Carnell. Their research and reports have been essential to the establishment of the facts.

All these groups/people ensured that the truth was researched and exposed. Highly important was Shorten’s Labor announcing that ATO reform was needed. This meant that the issue was not party-political divided.

Then the Morrison government took action (February 2019) announcing the establishment of a Small Business Tax Tribunal and that it would start on 1 March 2019. This was a huge step. Tomorrow we’ll explain the details and why it’s so significant. But special thanks and congratulations must go to Small Business Minister Michaelia Cash and Assistant Treasurer Stuart Roberts. Achieving this reform without legislation has without doubt required a massive effort of behind-the-scenes persuasion within the federal bureaucracy. This is real leadership!

Big thanks also to the ATO. Evidence so far is that there is a ‘sea change’ in attitude occurring within the ATO. The big ATO cultural problem toward small business in the ATO looks like it is being addressed. Have no doubt. This would not be occurring without the full backing of Tax Commissioner Chris Jordan. The journey has begun. We’re hopeful, but cautious. Follow-through and substance both matter.

More tomorrow…