Self Employed Australia

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Taxation

ALP takes first step to make the ATO behave. But much more is needed

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Breaking news is that the Australian Labor Party will, if they win government at the next election, restructure the ATO so that it is forced to use fairer processes in its handling of tax disputes. The ALP media release is here.

We are delighted with this first step by the ALP, but it doesn’t go far enough.

We have made it clear (and very public) that our faith in the ATO to operate fairly, even legally, has totally collapsed. We explained this in evidence to a Senate Inquiry in late June. We also provided a detailed submission.

We made reference to one judge who, late last year, said in relation to the ATO:

“…Departures from model litigant behaviour can, in particular circumstances, constitute professional misconduct, a contempt of court or an attempt, contrary to s 43 of the Crimes Act 1914 (Cth), to pervert the course of justice.”

The situation is serious. The collapse of trust in the ATO is well justified on the mountains of evidence that we have documented. Remember the Four Corners’ program ‘Mongrel Bunch of Bastards’?

The ALP Policy

At least the ALP recognises the problem in a tangible way. Its policy is to:

“…legislate to establish a new position of Second Commissioner – Appeals within the Tax Office, reporting to the Commissioner of Taxation, to head up a new Appeals area within the Australian Taxation Office.”

This would be an improvement on the shoddy, incompetent, bullying processes the ATO currently applies.

But the problem with the ALP policy, however well-intentioned and even though it marks an improvement on the status quo, is that it leaves the process inside the ATO.

The Needed Reform

The only solution that can restore trust in Australia’s tax administration is to take appeals and prosecutions outside of the ATO.

In other words, the principles of good policing should apply, namely:

  • The ATO should only be a collection and auditing body.
  • A totally separate body, under the Attorney-General’s Department, should handle disputes and prosecutions. We suggest that it might be called the Department of Tax Prosecutions (DTP).

In line with good policing practices elsewhere, the ATO would recommend cases to the DTP. If the ATO conducted a bad or illegal assessment, the DTP would tell the ATO to do its job again. We’ve summarized the needed reform here. And we’ve detailed the reform in our position paper, The Power to Audit is the Power to Destroy.

Fundamental ATO reform also requires the creation of a Small Business Tax Tribunal, external to the ATO, with no lawyers allowed to participate.

Nonetheless, the ALP is at least taking a first step in the right direction.

We oppose a draconian expansion of the ATO’s already draconian powers

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A proposed new law would effectively empower the Australian Taxation Office (ATO) to bankrupt a business overnight where the ATO held an unproven view that PAYG tax was owed.

The law denies normal access to justice and the truth. It represents a scary step in a progressive crushing of the rule of law in Australia under the excuse of tax collection. We’ve made a submission opposing the Bill.

The law would authorise the Australian Taxation Office to deny tax deductibility of payments to employees, contractors and others where the ATO alleged that the paying party should have made PAYG tax withholding remittances on the payments. The ATO would not be required to prove the facts of its case before it acted.

We oppose the Bill because:

  • The ATO abuses its current powers and cannot be trusted. We explain this in our submission.
  • The Bill will expand the ATO’s unaccountable powers and would give the ATO the power of life and death over businesses on the basis of unproven ATO allegations.
  • The Bill goes beyond the intent stated in the Black Economy Taskforce Report and will enable the ATO to do considerable harm to the economy.
  • The rationale for the Bill as stated in the Black Economy Taskforce Report is illogical. When examined, it appears to be nothing more than a grab for additional ATO power.
  • The ATO already has extensive power to sanction improper black economy behaviour and if it is not being successful in this regard, it can only be because the ATO is inept and incompetent.
  • The Bill is unconstitutional.

We say that the Bill should not proceed, nor should it be contemplated until such time as the ATO has imposed upon it effective, proper and independent oversight to stop it abusing its powers and until it begins to operate in an ethical, moral and legal manner.

ATO officially ‘unfair’ according to ATO’s own report

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An ATO survey of self-employed small business people who had been in dispute with the ATO during 2017 has produced an embarrassing result for the ATO. The survey, costing close to $1 million, assessed whether people had been treated fairly by the ATO.

The outcome is damning of the ATO’s treatment of the self-employed. If a private business were to receive results like this, heads would be chopped in the senior management ranks. Such results would demonstrate massive customer dissatisfaction. The business would quickly be out of business.

Of the 670 people surveyed:

  • 36% said that the ATO did not understood their point of view.
  • 51% were not well informed about the progress of their dispute.
  • 26% said that the process was biased and not independent.
  • 45% considered that the time taken for the final decision was unreasonable.
  • 31% considered that the communication was not straightforward or honest.
  • 53% said that the internal discussions were not transparent.

And, most significantly:

  • 61% said that the costs (time, money and resources) were unreasonable.

But the ATO is a monopoly and apparently considers the outcome to be quite good because it’s better than previous surveys.

This ATO survey confirms that the reports of ATO bad behaviour in the Four Corners program ‘Mongrel Bunch of Bastards’ (9th April)  were highly accurate. The ATO’s unfair behaviour is surely systemic given the survey results.

The survey reinforces the need for major reform of the ATO. We continue to campaign for a dedicated Small Business Tax Tribunal, external to, and independent of, the ATO. This is just one of the reforms that is sorely needed.

Our analysis of the ATO survey and the survey itself (obtained under Freedom of Information) are here.

Official government report confirms ATO has big problems

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The ATO has suffered another major hit to its reputation, this time (and again) from an official government investigation.

You may remember that following the Four Corners show ‘Mongrel Bunch of Bastards’ which exposed ATO abuse of small business people, the Minister, Kelly O’Dwyer, ordered a Treasury inquiry. Both the Small Business Ombudsman and the Inspector-General of Taxation (IGT)  were asked to participate.

The Small Business Ombudsman report (early July) said the ATO conducts “…fundamental denial of access to justice for small business.”

The Inspector-General of Taxation’s report has now been released. Normally the IGT uses cautious language, but this time the report is blunt. It is quite damning of the ATO’s treatment of small business, self-employed people.

Some of the things the IGT says about the ATO include:
  • Creates perceptions of bias in its processes.
  • Debt collection has been ‘random and ad hoc’.
  • Badly supervised junior staff who issue garnishees.
  • Compensation is just a token scheme and reform is required.
  • 86 per cent of debt actions are against self-employed people.
  • An independent review process is only available to the wealthy.
  • Community confidence and trust have been in decline.
  • The ATO’s media campaigns following Four Corners have damaged the ATO.

The full report is here. We’ve put together key extracts from the report for easier reading.

The Age and Sydney Morning Herald reporting labelled the ATO

The Australian’s headline said Tax office must beef up compo for victims.

The IGT also stated that since the Four Corners program it has received 178 complaints and the Small Business Ombudsman over 100. A total of more than 278 complaints. This is 4.5 times the number of complaints the Tax Commissioner stated in his evidence to the Senate Committee on 30th May 2018 (see second paragraph, page 7). The Commissioner said “…only 62 actual complaints have emerged since 9 April from all sources (IGT, ASBFEO and ATO).” This reinforces why we’ve said “Please Mr Tax Commissioner, get your facts straight”. It’s concerning when even Parliament cannot rely on the ATO to be factual.

At least we can say of the government and Minister O’Dwyer that they are prepared to be confronted by facts from independent sources. Whether the truth about the ATO’s behaviour leads to the sort of reforms we say are necessary is too early to tell. Here’s our reform report, An urgent but common sense agenda.

Government report says ATO denies “justice for small business”

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Following the ABC Four Corners program ‘Mongrel Bunch of Bastards’ alleging Australian Taxation Office abuse of small business people, the first of three government-ordered reports was released yesterday.

The report from Small Business Ombudsman Kate Carnel states that the ATO has “serious system-wide issues” that result in “…fundamental denial of access to justice for small business.”

The government report is a huge rebuke to the ATO that has consistently said ‘nothing to see here folks!’ and ‘it’s all a beat up’ and that the people profiled in the ABC show were stupid and suggesting they were tax cheats.

There was great scepticism that the reports ordered by the Minister for Revenue, Kelly O’Dwyer, would be a whitewash to protect the ATO. But no! The Minister deserves congratulations for allowing a genuine search for the truth.

The Small Business Ombudsman’s report studied the cases of over 100 small businesses who requested assistance. Based on this fact-finding examination of actual cases, the Ombudsman reports that the ATO:

  • Operates its systems to target revenue collection.
  • Can even (and does) take away ABNs, thereby stopping businesses from operating.
  • Raids people’s bank accounts even before taxpayers have any knowledge there is an issue.
  • Lacks true independence in terms of its internal review processes.
  • Does not provide adequate compensation for its own wrongdoing.

The Ombudsman talks of:

  • Abuse of ATO power.
  • ATO delays on decisions so that it can collect debt.

The Ombudsman’s report is totally consistent with the allegations we have been making against the ATO for more than five years.

The Ombudsman calls for major ATO reforms including:

  • The creation of a fully independent low cost external review mechanism that is binding on the ATO.

This is consistent with our campaign for a Small Business Tax Tribunal.

We need major reform to the ATO. But small business people also need effective capacity to defend themselves if they come under ATO attack.

We give the Senate evidence on ATO small business behaviour

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Quite recently (14 June) we were invited to give evidence before a Senate hearing on the behaviour of the ATO towards small business. This was done within the context of proposals to require government departments to comply with ‘model litigant’ obligations. That is, to behave fairly and ethically!

We made a detailed submission supporting the proposal and explained how the ATO regularly abuses self-employed, small business people.

Our evidence was supposed to go for 30 minutes but went for over 50 minutes under detailed Senate questioning. In part we stated:

  • Our observation is that if you are upright, honest and completely forthright with the ATO, you run quite a high risk of getting abused through the system
  • …the behaviour of the ATO I liken to what happens with the churches over the sexual abuse cases and with the banks over their behaviour. At all times, it’s ‘deny, deny, deny’.
  • The tax commissioner has the power of a dictator. If you have dictatorial powers, those powers will be abused.
  • …on the issue of fraud, the taxation office in our view concocts allegations of fraud and any such allegation becomes at law a fact and not merely an allegation, which the taxpayer then has to ‘unprove’.

Our assessment of the behaviour of the ATO was taken with great seriousness by the Senate Committee. The full transcript of our evidence is here (see pages 1 to 8).

Channel 10 News covered our evidence that night. See the news segment here.

And other media outlets also showed great interest:

Please, Mr Tax Commissioner, get your facts straight!

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In all our commentary on the Australian Taxation Office, not once have we personalised our criticisms.

Yes, we have said that the Tax Commissioner is a Tax Dictator. But that is a statement of legal fact. All tax power by statute is vested in the Tax Commissioner. And those powers make the Commissioner effectively policeperson, prosecutor, judge, jury and financial hangman. That is, the powers of the office holder of the Tax Commissioner are the powers of a dictator! Here’s what the Tax Commissioner can do to you.

Yet the current holder of the office, Tax Commissioner Mr Chris Jordan, seems so angered by our criticism that he has launched personalised attacks.

Under parliamentary privilege—that is, safe from defamation action—in evidence before a Senate Committee Mr Jordan has attacked Self-Employed Australia and our Executive Director Ken Phillips. It is fair enough that Mr Jordan seeks to reject our criticisms. But he should be factual. Here’s one example where he is wrong in his Senate ‘evidence’:

Mr Jordan: There was a person on Four Corners who said that the people at the ATO—he had a bit of a mixed metaphor here—slowly boil people until we roast them to death. I can cook, so I know you don’t roast when you boil, but nonetheless that’s what he said. So, yes, he said that, and that was on the ABC Four Corners program—entirely inappropriate—

The Tax Commissioners is entirely wrong. The transcript of my words on the Four Corners show, ‘Mongrel Bunch of Bastards’ on Monday 9 April 2018, reads:

“They play games with you. They just pull you in, and then they cook you slowly, effectively until you are roasted and you are dead.”

There was no mixed metaphor.

Mr Jordan is entitled to criticise or make allegations about us, even if he wants to move from policy to personal criticism. But what the community expects from the holder of arguably the most powerful public service position in the country is strict truth. Mr Jordan’s ‘misstatement’ is unbecoming of the holder of this important public office in our view.

Here’s the core point. We work hard to assist people under attack from the ATO. We find constantly that the ATO manipulates facts and does not tell the truth. This occurs as they oppress people such as those who appeared on ‘Mongrel Bunch of Bastards’.

The foregoing example of roasting/boiling is silly. But, if the Tax Commissioner himself cannot be relied upon to be factual, even before a Senate Committee, what does that say of the reliability of ATO facts when they prosecute small business people?

We will expose more and more serious ATO fact manipulation.

Is it any wonder that we have lost faith and trust in the integrity of the ATO?!

We’re not mongrels and we don’t cook people, says ATO boss

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Yesterday morning the head of the Australian Taxation Office, Mr Chris Jordan, denied that the ATO were a ‘mongrel bunch of bastards’. (See ABC report here.)

Mr Jordan was making a presentation to a Senate Estimates hearing and responding to the Four Corners show on 9 April ‘Mongrel Bunch of Bastards’.

Mr Jordan also rejected our comments in the show that the ATO “cooked people slowly, until you are roasted and you are dead”. Mr Jordan said: “People at the ATO do not get up in the morning thinking who can I destroy or boil to death.”

Mr Jordan denied that there are any systemic problems in the way the ATO treats small business people. However, he announced that the ATO has set up new processes to address any problems. That is, the ATO is addressing problems it says don’t exist.

Maybe we are starting to see some early results. We’ve been pushing for significant change in the ATO since 2015. Here’s our background activity. We want a small business tribunal. And recently we went into more detail about ATO reform. We want the ATO broken up. Details here. And we’re calling for a Royal Commission into the ATO.

The problem with the ATO’s doing internal reform is that it has promised this many times in the past. But its ‘reforms’ have not changed the bad treatment of self-employed small business people. Reform has to be imposed on the ATO by Parliament.

I discussed this on drive-time radio yesterday with Ross Greenwood of Radio 2GB Sydney. Yes, I was fairly ‘blunt’ in putting our views about the ATO. You can hear the interview at this link.

Like the banks, the ATO needs a Royal Commission

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We’ve come to the conclusion that the truth about the Australian Taxation Office’s bullying of self-employed people will only come out in a full Royal Commission inquiry.

We’ve been strongly prompted to this conclusion by an article in The Australian yesterday by the doyen of business columnists, Robert Gottliebsen. Robert is correct in his article ‘The ATO is repeating the hideous mistakes of bank boards’.

The ATO controllers are in denial about the ATO’s bad behaviour, just like the banks were with unfair contracts, including abusive customer treatment (and the churches also were on sex abuse!) Robert said:

“…bank boards were in total denial and did not recognise that they had created contracts that almost encouraged staff to treat small business customers badly.”

Robert points out that change is possible but legislation is required and he recognises our efforts to achieve change. He said:

“And the (bank) directors allowed it (abuse) to continue despite years of commentary from myself in The Australian and the efforts of many others, including Self-Employed Australia’s Ken Phillips to get legislation through Parliament to make directors do the right thing and construct contracts that were fair to both parties.”

Major reform of the structures and administration of tax by the ATO is essential. The ATO has operated as is since 1936. Reform involves breaking up the ATO into separate independent authorities and an independent small business tax tribunal. We’ve detailed this in our ATO reform agenda here.

Reform should proceed without delay, however. As Robert says:

“… like the banks before fair contracts, ATO officials have the power to do what they like. And, again like the banks, they will not be caught out until there is an ATO royal commission.”

We spent seven years campaigning for fair contracts. Our campaign commitment to ATO reform is also long-term. And we are proudly obsessive in our efforts!

Our next step is submissions to the Senate Inquiry into whether the Commonwealth (eg, the ATO) complies with its Model Litigant obligations.  At the public hearing on 14 June we’ll be saying that the ATO ignores its obligations. We’ll keep you informed!

PS: Robert Gottliebsen was recently inducted into the Australian Media Hall of Fame. Quite an honour!

Top (retired) Federal Court Judge blows whistle on ATO

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Since the Four Corners show ‘Mongrel Bunch of Bastards’, which exposed the abuse by the ATO of small business people, the ATO has been in denial mode. The ATO’s press release is essentially a ‘nothing to see here folks’ statement.

The Australian Services Union, representing ATO staff, has demanded that we at Self-Employed Australia apologise for ‘scurrilous’ accusations. It is outraged by our statements in our submission opposing the ATO credit agency report Bill. It’s pleasing to report that this Bill has now been put ‘on hold’ by the Minister, Kelly O’Dwyer.

But now something has happened that cuts through the ATO’s (and its union supporters’) hand-wringing!

Recently retired Federal Court Judge Richard Edmonds has spoken out. Edmonds is highly respected as one of Australia’s most knowledgeable tax jurists with 50 years’ experience in tax law. In a letter to the Australian Financial Review the retired judge said:

  • “I have never known … the ATO to apologise to a taxpayer where a court finds that the ATO wrongly assessed … in the collection process.”
  • “… the ATO has even taken the position, pending appeal, that it is not bound by decisions of a single judge adverse to the commissioner…”

The judge refers to:

  • “… the existence of a mentality, maintained by too many ATO officers for too long, that taxpayers on the whole are cheats and liars and anything the ATO does to bring them to account can be justified…”

That such an eminent ex-judge would speak out in this way is quite extraordinary. His comments add significant weight to the observation that there is a major problem inside the ATO, even to the extent that the ATO will ignore a judge’s ruling.

The retired judge made further comments to Robert Gottliebsen in The Australian reinforcing his AFR comments.

This is an ‘Australia: Wake up call’. The government and Parliament must surely take serious notice of such an eminent jurist. We say that the ATO needs urgent reform and not just more talk and investigations. Our ATO reform program is here.