Self Employed Australia

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“Everyone needs an Advocate”

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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…

Some sensible facts in the ‘gig’ economy/small business debate

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Sunday, March 24, 2019

We recently discussed the re-emerging campaign against self-employment being cooked up principally by unions and the Labor ‘left’. We’ve seen this over many decades and this time the ‘evil’ is the gig economy.

  • And we’re witnessing the Victorian government conducting what we see as a cooked-up Inquiry. Frankly, we think they’ve written the conclusion before starting the Inquiry. In our detailed submission we’ve said that the discussion paper is littered with misinformation, plainly wrong on basic facts and implies a forbidding imaginary scenario. Yes, we have our bias (a big bias) in favour of self-employment.

But it’s really good to see some sensible, independent, factual analysis injected into the debate. Bernard Salt is one of Australia’s top demographers. He talks facts. In his most recent article in The Australian he supplies some illuminating information.

Sole trader numbers surged, he says, by 65,000 last financial year. And

  • “Further analysis revealed that many of these new businesses are connected to the gig economy…”

However, this article focuses on small businesses employing 1-19 workers. He says

  • There are “823,000 such businesses in Australia employing, by my estimates, six million workers or close to half the nation’s workforce.”
  • “Over the preceding decade … small business … expanded by 80,000 supporting about half a million jobs.”

But it’s the diversity that’s interesting. He says

  • “Non-standardised product or service delivery is where small employing businesses are expanding, delivering bespoke housing solutions and one-on-one medical advice.”

He points out where this is happening and where it needs to happen.

  • “There is evidence of a rising pool of small employing businesses—a kind of start-up culture if you like—emanating from the Sydney, Melbourne and even the Adelaide CBDs. But this is not the narrative in Perth or Hobart or Canberra or Darwin.”
  • “But if we are to cultivate a culture of entrepreneurship then we need stronger small-business hubs delivering measurable net new employing businesses in the smaller states and territories.”

Bernard urges politicians to get the policy settings right because it’s here where the big growth in jobs will come from.

We agree. That’s why over the decades we’ve fought for reforms to work safety laws, the Independent Contractors Act, small business unfair contract laws, Small Business Commissioners and more. These are the sort of policy settings that support small business and the creation of jobs. The anti-gig economy campaign is dangerously irrational in its non-factual attack against business systems that create small business opportunity.

But, on a big upside: We’re becoming quietly hopeful that we’re about to see a big advance from the ATO in its processes for dealing with self-employed small business people. We’ll keep you informed.

Powerful ‘anti’ forces need a bucket of icy-cold water poured over their heads

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Monday, March 04, 2019

According to demographer Bernard Salt, there’s a big cultural shift in Australia towards being your own boss. And it’s a lifestyle thing. In The Australian Bernard referred to:

… profound changes to the way we earn a living…Part … caused by the rise of the gig economy … but part is also due, I think, to the ageing of the population and to a cultural shift in attitudes to work.

Bernard said that there has been a six-fold increase in the sole-trader population since the end of the mining boom. He gives a break-up of the data by state, capital city and regions. He refers to entrepreneurial ‘hotspots’ such as the Melbourne CBD, but also regions such as Kings Meadows in Launceston with a 23 per cent increase. Bernard asks:

What could be better than living in a seachange idyll? Being your own boss in a seachange idyll like Victor Harbor, or Torquay, or Busselton, or Ulladulla, or the Gold Coast.

He concludes that:

A new be-your-own-boss narrative is driving the Australian obsession with lifestyle.

But there’s a problem. There’s a whole bunch of powerful groups who hate this Australian lifestyle urge.

The anti-gig economy thrust is simply an excuse to hit self-employed people, a decades-old agenda.

And a key indicator of what’s coming is the Victorian government’s inquiry into the gig economy intended, in our view, to build a false reason to clamp down. The inquiry’s discussion and approach, however, are full of misleading drivel. And we’ve said so in our lengthy detailed submission, In Search of Unicorns:

  • For more than a century, variants of the same gloomy fiction have been cycled and recycled, almost in clock-like manner. On-demand platform work is the latest variant of a moral fairy-tale that pits the ‘good employee’ against the ‘wicked independent contractor’.
  • …the (Victorian) Background Paper … assumes an air of suspicion about independent contractors.
  • So much of the discourse around both the platform economy and the independent workforce is inflated, overstated and alarmist … [with] … nightmare scenarios of Technological Armageddon and the End of Work.

Oh spare us the idiocy! And we appeal that please—

  • A good bucket of icy cold-water needs to be tipped over the protagonists of this hyperbole. That includes governments.

It looks like we’re in for a long argument with these self-employed haters. But that’s what we’ve been doing for almost 20 years!

ATO Executive ‘Not Guilty’– Credible evidence that ATO audits are ‘wrong’

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Last week top ex-ATO official Michael Cranston was found not guilty of misusing his position to benefit his son who is on separate charges of alleged tax fraud.

In his defence Mr Cranston said that the actions he took in relation to his son were no more than what he had done for other taxpayers on hundreds of occasions. That is, that tax audits were often so bad that he had to intervene to stop injustice against taxpayers.

Mr Cranston’s evidence confirms what we have been saying for years—namely, that the ATO audit process, outcomes and appeals are systemically bad and flawed. Mr Cranston had to fix bad audits for high-wealth individuals. But our experience and other evidence (see Four Corners) strongly suggest that wrong audits are imposed on small business people and that the ATO has no internal ‘white knight’ to fix bad audits suffered by small business people.

In his evidence Mr Cranston stated that tax audits frequently treated taxpayers badly and that there was a cultural problem inside the ATO. Media quotes are as follows

  • “I was always looking out when my auditors went a bit too far which happened often.” (The Australian, 5 Feb 2019)
  • Mr Cranston said he was concerned about the correct application of tax law, and was “always looking out” for examples of when tax office employees were “too aggressive.” (SMH, 4 Feb 2019)
  • Cranston said he was concerned about “the culture (ATO) side of it” and wanted to know what area was treating taxpayers “like this.” (Goulburn Post, 4 Feb 2019)
  • Mr Cranston had referred to him “hundreds of times” where he feared the tax office had been too aggressive… (AFR, 8 Feb 2019)
  • Bruce Collins, who ran the ATO’s Technical and Case Leadership team handling complex tax matters until he retired in April 2017 told the court: “Michael’s job was to make sure that the wheels didn’t come off and embarrass the tax office” (The Australian, 18 Feb 2019)

Mr Cranston’s evidence is effectively that of a highly credible quasi-whistleblower who operated at the very top levels of the ATO and knew the truth about the bad audits inside the ATO.

This exposes as misleading the denials by the ATO of the existence of a problem—even denials under Senate questioning. Evidence from Mr Cranston’s trial is that the ATO’s concern is to avoid adverse publicity for the ATO. Where, we ask, is the ATO’s concern for truth and the correct application of tax law and treatment of ordinary taxpayers?

The government is moving to implement quickly a fix for the ATO’s mistreatment of small business. But this week we note that the draft design of the Small Business Tax Tribunal put forward by the Canberra bureaucracy will neuter its effectiveness and enable the ATO to continue its bad ways. (The Australian, 18 Feb 2019.) We will say more on this shortly.

Thank goodness. Morrison Government is DOING, rather than just promising, ATO reform

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Usually, in the lead-up to elections, governments make all sort of promises in the hope that this will give them favour with the electorate. But we’re delighted to report that with small business tax reform the Morrison government is delivering, not simply talking.

Today the government announced that the Small Business Tax Tribunal will start up on the 1 March 2019—just two weeks away. This is huge. We continue to see bad ATO small business audits and an ATO incapable of quickly fixing glaring audit errors. It’s an audit system of considerable incompetence, with small business people the victims.

It’s fabulous to see the government responding quickly and with a practical solution to start up immediately. In other words, this is not just an election stunt—it’s real reform.

The key features of the reform already known include:

1. Tax concierge service through the Small Business Ombudsman.

2. 10 tax clinics through Universities to assist small business people.

3. ****A dedicated Small Business Tax Tribunal (SBTT) operating within the AAT. The SBTT will:

    • Be totally separate from ATO.
    • Generally NOT involve lawyers.
    • Appoint a case manager to support the taxpayer.
    • Make decisions within 28 days of a hearing.
    • Require a payment of $500 from the taxpayer for each appeal.

Today’s announcement supplies some additional information:

  • ABN cancellations will be appealable to the SBTT. This gives us an independent review process for the first time.
  • If the ATO uses lawyers, the ATO must pay for the self-employed person to have ‘equivalent legal representation’. This is important because it balances the overriding power/resources of the ATO.

We entirely endorse and congratulate the Morrison Government on the decision to set up the Small Business Tax Tribunal immediately. This is a huge plus for self-employed, small business people.

Details of our campaigning and the history and issues related to the ATO’s treatment of small business people are here.

China and the ATO – Dictatorship vs the Rule of Law

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Yes, we have focused heavily on seeking reform of the Australian Taxation Office in recent times. But the issue is not simply about tax revenue. It’s much bigger. It’s about the rule of law. In this longer-than-normal communication we explain what motivates us by drawing some parallels between China and the ATO.

We start with a story of an acquaintance who does business in China who lamented a recent bad experience. A disgruntled client wanted a refund and penalties to which the client was not entitled. The client had police raid our acquaintance’s office, seize computers, detain a director and scare the life out of staff. She is now unable to leave China.

Throughout this process there’s been no independent court involvement, no ‘rule of law’. This story should not surprise.

Ex-Premier of China Zhao Ziyang would aptly describe this as the ‘rule of man’ as opposed to the ‘rule of law.’

Zhao was the ‘make it happen’ economic reformer under paramount leader Deng Xiaoping’s opening up of China in the 1980s. Zhao, however, incurred Deng’s anger for not supporting the 1989 massacre of the Tiananmen Square pro-democracy protestors. Zhao spent the following years until his death under house arrest. He kept secret diaries revealing the inner workings of the Chinese Communist Party.

Nothing has changed in China since. It is ruled by dictatorship—largely the legacy of Deng Xiaoping. Economic development is pursued on the condition that dictatorship prevails. The story told above is indicative of such a regime. The rule of law does not operate.

Dictatorships operate through cascading patronage. The supreme ruler allocates power to those below through interpersonal relationships. Our business acquaintance was unfortunate enough to have a vindictive client who personally exercised the power of the state within this complex chain.

China has proven that massive economic growth can be achieved under a dictatorship. The downside is that business activity is fraught with major risk. If an individual falls foul of a powerful person or group, they are squashed. Zhao Ziyang’s ‘rule of man’ prevails over ‘rule of law.’

In Australia, we pride ourselves on a tradition which is founded on the operation of democracy and the rule of law. That is, ‘the people’ rule within defined and enforceable rules. Theoretically, all individual power is constrained. The rules-based system is supposed to prevent the abuse of power experienced by our acquaintance in China.

But Australians should not be smug. Democracy and the rule of law are not complete. Elements of dictatorship exist and do oppress individuals from time to time. Perhaps the starkest example is the Australian Taxation Office, whose power and behaviour received concentrated media exposure in 2018.

Under taxation law, the Tax Commissioner is effectively a ‘tax dictator’ exercising all power. The Commissioner’s power cascades under professional privilege to individuals in the ATO.

The ATO can and does raid people’s homes, takes computers and documents, takes money from their bank accounts, detains persons and stops them leaving Australia. This is done without the ATO having to prove that a debt is actually owed. The ATO only needs to form an opinion of a debt and that ‘opinion’ is enforceable.

Oversight of the ATO by the judiciary is strangely twisted. Take one example. Why would a court rule that the ATO did not have to produce a document in its possession which a taxpayer claimed proved their innocence? This happens because the judiciary reviews cases within the framework of the Tax Commissioner’s formidable powers. If legislation states that the ATO can behave this way, the judiciary simply confirm this.

To the ordinary person this is a perversion of the rule of law as ordinarily understood.

Major media coverage of the repeated abuse of small business people by the ATO has triggered political recognition of a problem. Small business people have effectively been bankrupted by the ATO—even where the ATO subsequently admitted no debt was owed.

But although moves are afoot to extend the ATO’s already extensive powers, both the Morrison Coalition government and the Shorten Labor opposition have said that change is needed. Labor says that change can occur within the ATO. The Government has announced that a separate, independent tribunal for small business people will provide checks against ATO abuse. It’s an effective reform step which the government plans to implement quickly.

What the ATO example reveals is that democracy and the rule of law can never be taken for granted. Even in Australia we must constantly work against those aspects of overbearing power within our systems.

Where the rule of law prevails over the ‘rule of man’, stronger, more resilient societies and economies should emerge. Where even ordinary persons can engage in business confident that the risk of abuse by powerful individuals is constrained, they will engage in more business. This creates social and economic strength. That’s what we’re campaigning for.

If you’re particularly interested in following through this issue, this 2001 speech by then-Chief Justice Murray Gleeson is worth reading.

In part, he says:


As an idea about government, the essence of the rule of law is that all authority is subject to, and constrained by, law. The opposing idea is of a state of affairs in which the will of an individual, or a group, (such as a Party), is the governing force in a society…

In Australian legal and political discourse, a governing authority could not satisfy the requirements of the rule of law merely by being able to point to a fundamental law which empowered it to act in an arbitrary manner….

Suppose legislation created an office of Tax Collector, and decreed that every person who derived income should pay to the Collector such percentage of that income as the Collector, in his or her absolute discretion, with uncontrolled power to discriminate, might think fit. That would be a tax. But would it be a law, within the meaning of a Constitution which assumes the rule of law?

Labor takes bold move on unfair contracts

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Tuesday, January 29, 2019

Bill Shorten’s Labor has announced that it will make unfair contract terms illegal and impose major fines for breaches. This is a position that we totally endorse.

Unfair contract laws protecting small business people were created in November 2015. Big businesses had 12 months to fix their contracts before the laws took effect. But big businesses did nothing. The ACCC has worked hard to enforce the laws but the task is huge when large businesses won’t voluntarily comply. (Idiots! Big business, that is!)

The government is conducting a review. Here’s the Treasury discussion paper.  In our submission we support

  • Making non-compliance illegal.
  • The imposition of fines.
  • No limit on the value of a contract that can be declared unfair.

***Further, we ask that government be subject to the unfair contract laws which, surprisingly, is not currently the case. It’s absurd that government makes one rule for the community but won’t apply the same rule to itself. Talk about double standards!

It’s excellent that Labor has declared its position supporting making non-compliance illegal. Labor’s policy is comprehensive. This includes increasing the number of small businesses and contracts that will have unfair contract protections. That is:

  • Businesses with a turnover of up to $10 milllion will be eligible.
  • The contract threshold will increase to $1 million (up from $300,000).

We’re particularly happy with this.

We ask that Labor also supports applying the laws to government.

We hope that the Morrision government finishes its review quickly, decides to beef up the laws and makes the needed changes quickly.

ATO refuses internal corruption probe. Anti-Corruption Commission needed

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This week ex-Deputy ATO Commissioner Michael Cranston arrived at court for the start of his trial for allegedly using his office with the intention of dishonestly obtaining a benefit for his son.  Cranston was the top tax official in charge of high-wealth individuals. His trial forms a backdrop to questions about the integrity of the Australian Taxation Office.

We’ve raised questions as to whether the ATO suffers from internal corruption. In September last year we released a major report on a special deal handed to high-wealth individuals in 2013. The deal was organised by then-Deputy Commissioner Michael Cranston, with a loss of tax revenue estimated as high as $4.3 billion. There are calls for a high level inquiry.

We’ve tried to work ‘inside the system’ for an inquiry to occur.

  • First, we wrote to the Australian Commission for Law Enforcement Integrity. This Federal Authority is supposed to hunt for potential corruption in the Federal Public Service. The Commission wrote back to us saying they don’t have the power to investigate the ATO. They suggested we contact the ATO’s internal anti-corruption unit.
  • On 5 November last year we lodged a request with the ATO’s internal fraud unit to conduct an investigation.

For the first time, we can now reveal the response we received on 20 December 2018. The response was from the Director of the Fraud Prevention & Internal Investigations, ATO Corporate and reads as follows:

“It is acknowledged that these issues have been aired with the ATO on previous occasions and it is understood the ATO has provided a response to yourself in relation to these matters.

On this basis, the FPII has concluded that it will not be investigating these matters that have been the subject of previous correspondence with your organisation and yourself personally.”

We replied the same day:

“These matters have NOT been aired between ourselves and the ATO and they have NOT provided a response in any form…. These matters cannot be dismissed lightly.”

Our conclusion is that the ATO cannot be trusted to conduct a proper, or even any, inquiry into serious matters of potential corruption within the organization. This is an extraordinary situation that cannot continue.

Fortunately, the Federal Government has announced that a new Commonwealth Integrity Commission will be established. This will be able to investigate potential corruption within the ATO. We urge that this new Commission be established quickly. We will refer our report on the ATO to the Commission as soon as it is established.