Self Employed Australia

"Everyone needs an Advocate"

“Everyone needs an Advocate”

Rod Douglass

Could the ATO have attempted to ‘pervert the course of justice’? Judge asks

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We work hard to ensure that our criticism of the way the Australian Taxation Office treats self-employed people is based on facts. Our summary of the mistreatment of Rod Douglass we think demonstrates the facts.

And the fact is that what happened to Rod could happen to anyone. This includes consultants, IT and engineering professionals, tradies, even home-based small business people.

But what has just occurred is extraordinary.

Michael Shord happens to be a diver working on overseas oil rigs. He is arguing with the ATO over how much tax he owes. Fair enough! His situation is a bit complex. However, a Tribunal made an error in a ruling. The ATO knew this. But when Michael tried to get the error fixed, the ATO opposed this in higher Courts.

In a Full Federal Court judgment last week Justice Logan said: (brackets and emphasized words are ours)

the “…denial of procedural fairness to Mr Shord … is patent.”

and

“…the Commissioner (Tax) should not just have not opposed the amendment (fixing the error) but readily consented to it…”

Justice Logan then said of the ATO’s behaviour in opposing the fix,

“…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.”

This is arguably an extraordinary judicial criticism, almost a warning to the ATO.

However, Justice Logan then stated

“…it appears to me that the lack of a ready concession of the jurisdictional error was just the result of a lack of understanding…”

Prior to stating the above, Justice Logan demonstrated an acute understanding of history and the foundations upon which a just society sits. And further, how lack of integrity and honesty by tax authorities can crumble those foundations. His comments are thoughtful. Read them here.

Justice Logan’s analysis reminds us of the importance of our campaign for reform of the ATO. It’s not just about self-employed people but the very integrity of our society.

Here are links to a summary of last week’s judgment and the judgment itself. Also, here’s a quick YouTube summary.

Robert Gottliebsen in The Australian has also commented on the case: ‘Federal Court judge warns tax Commissioner’

Understanding both Rod’s case and Michael Shord’s will better prepare you when you’re faced with a Tax Audit.

You open the mail. You owe us $422,030.64 says the ATO. What??

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Imagine this. You arrive home from work. You’re a freelance consultant; an engineer or maybe an IT specialist currently doing work for a bank. Even an aged care worker or a plumber! You’re one of the 2 million plus self-employed people in Australia, one of the new breed of entrepreneurial ‘gig’ economy workers, so the commentators say!

A month ago you had a phone chat with a couple of seemingly friendly ATO officers who had queries about how you work and your tax returns. You were open and honest. Nothing to hide! Pretty simple really?

There’s a letter. You open it. It’s 18 pages of confusing Tax Office bureaucratic blabbering. Somehow you’re accused of tax fraud/evasion. You struggle to understand. But one thing hits you. It’s a demand to pay $422,030.64 for taxes going back 10 years, with 50% penalties and interest!

This can happen to anyone. It happens constantly. It happened to Rod Douglass, 55, a consultant in Perth. You might remember we’ve been helping Rod defend himself.

Rod has given us permission to publish the letter he received in July 2015. Here it is.

We defy you to understand the accusations. We’re publishing this because it’s important to understand how the ATO behaves. We consider the processes used by the ATO against self-employed people amount to bullying and intimidation. There’s no fairness here!

In defending Rod, the matter went to the Federal Court in November 2016. Then the ATO withdrew, saying they’d made an error. You’re joking! Seventeen months of legal firepower for the ATO to admit an error!

Then there’s this. Another letter, this one in March 2017. This time it’s 12 pages of ATO blather. Here it is. It’s essentially ATO running the same issue, and ignoring its 2016 admission of error. This time we defy you to work out how much the ATO is demanding.

We’re helping Rod again.

To be clear. This is not a matter of Rod not paying his taxes. He has consistently declared all income and paid taxes. The issue is over highly technical interpretations of tax law relating to how income of self-employed people should be treated. The ATO ‘forms opinions’ which are legally suspect, then attacks aggressively.

Our position is that the ATO must comply with the law, just as taxpayers comply with the law. In this article by Robert Gottliebsen (published today in The Australian) he says:

…  in the Douglass process the Australian tax office is graphically showing it can pick out any professional in Australia who is operating in partnership and bankrupt them because they can’t afford to defend themselves.

We agree. That’s why we need an independent Tax Tribunal.

Good news: BIG review of Australian Taxation Office

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You’ll be aware of our ongoing heavy criticism of the Australian Taxation Office in their treatment of small business people.  In our view:

‘Mum and dad’ businesses are targeted by the ATO with unfair, even questionably legal, tactics.

And as just one example, we successfully defended Rod Douglass from baseless ATO accusations of fraud/evasion.

Further, with the recent resignation and investigation of a top Deputy-Commissioner over a massive tax fraud scandal, the administrative and investigative systems of the ATO are suspect.

We certainly have lost trust and faith in the fairness and impartial application of tax law by the ATO in relation to small business people.

Well, now the Inspector-General of Taxation (IGT) has announced a wide-ranging review into the practices of the ATO. We’re pleased to observe that, according to the IGT, the  “Review is being conducted at the request of the Commissioner of Taxation…” We congratulate the Commissioner, Chris Jordan, in taking this initiative. It’s necessary if the integrity of the tax administration system is to be assured.

We’ll be putting in a substantial submission drawing heavily on earlier submissions we have made as follows:

And adding our more recent learning experiences in undertaking the legal defence of self-employed people who found themselves under ATO attack.

To understand the scope of the Inquiry, here are some quotations from the IGT’s website:

  • …this review will focus on the future taking into account technological, social, policy and regulatory changes.
  • Products that transfer risk to third parties, such as taxpayer audit insurance and professional indemnity insurance, may be other areas for future development.
  • Work patterns are also changing as seen in the ‘gig’ economy where workers are engaged on a contractual or project-by-project basis rather than full-time employment, particularly impacting in-house corporate specialists.

Under the Terms of Reference the IGT will look at:

3. How the ATO and the TPB can seize the opportunities presented by technological, social, policy and regulatory developments to:

a.    work with the tax profession in providing contemporary, reliable, accessible and secure services that foster voluntary compliance by meeting the increasing expectations of taxpayers and tax professionals and improving their productivity;

Note that we’ve emphasized the words ‘voluntary compliance’. This is because the ATO’s systems are so dysfunctional and impossible for ordinary people to understand or work with, that ‘voluntary compliance’ by ordinary people is uncertain, presenting significant risk.

ICA starts legal battle with the ATO on two fronts

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At ICA, we’ve been complaining to the ATO for years about its bad treatment of small business people. We’ve made major submissions to tax inquiries. Look at this long list. We’ve tried to work with the ATO but there’s been no change!

So now, thanks to some brilliant lawyers, we’re off to court. Here’s an overview of the case we described in March this year.

Finally, we can give some details. It involves 55-year-old IT contractor Rod Douglass, his wife and their partnership and a demand from the ATO for $550,000 backdated to 2006 (10 years!). Rod is accused of tax evasion. Why? Because he complied with ATO tax advice published on the ATO website. Amazing!

This treatment by the ATO can hit anyone working for themselves. Even if you’re totally honest with the ATO, they can and do target you. We’re out to protect Rod. We can’t let him be beaten up by the ATO without helping. We’ve filed in the Federal Court and the Administrative Appeals Tribunal. There’s a lot of information that we’ll release as the lawyers authorize it.

However, Robert Gottliebsen has given some details and commentary in The Australian today. His article is here. Read the article so that you understand how anyone could be hit!

Robert says:

  • …the reason for the bad (ATO) culture is the fact the … tax officials are investigator, prosecutor, judge, jury and appeal court.
  • It was the inescapable intention of the tax officials to bankrupt him (Rod).
  • The precedent could … destroy many husband and wife partnerships around the land.
  • Chris Jordan (The Tax Commissioner) should consider admitting that he has a cultural problem in his middle ranking staff.

Robert’s article gives some details of Rod’s case. ICA will keep you updated and publish much more detail here as events unfold.