Self Employed Australia

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Small Business Tax Tribunal

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…

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.

HUGE breakthrough for small business – ATO reform

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Late last night the news broke of the Morrison government’s decision to create a Small Business Tax Tribunal. Robert Gottliebsen in The Australian has scooped the story.

We launched a campaign in February last year for a Small Business Tax Tribunal. Obviously, we are hugely pleased to see the Morrison government take this initiative for fair treatment of small businesses.

If small business and self-employed people are to thrive and contribute to our society, the tax collection system must not only be fair but be seen to be fair. Unfortunately, the evidence is overwhelming that the Australian Taxation Office has been abusing its massive powers. It’s a bureaucracy out of control. This is bad for the rule of law, bad for democracy and bad for justice. The public service exists to serve the people, not abuse the people!

It is fair to guess that the dysfunctional politics of the last decade has enabled the federal bureaucracy at the ATO to push a self-interested power agenda. This is to be expected when ‘the people’, through their political representatives, are not directing the bureaucracy closely.

But the Morrison government has stepped up and in this initiative is acting as a government should. The PM is introducing a sensible first-level ‘check and balance’ against the ATO’s unrestrained powers. This is not about reducing tax collection capacity. Rather, it is about creating better efficiency and limiting abuse. In order for tax collection to operate well ‘the people’ must have faith that the system is administered fairly!

The Small Business Tax Tribunal will enable small business and self-employed people (that is, individuals) in dispute with the ATO to:

  • Go to the Small Business Ombudsman for practical help, then
  • Lodge an appeal with the new Small Business Tax Tribunal. It will be outside the ATO and part of the Administrative Appeals Tribunal system. That is clearly independent!
  • *No lawyers will be allowed, including ATO lawyers. This is the important bit. At the moment the ATO plays a very hard ‘lawyer game’ in disputes. This puts the ordinary person at a massive disadvantage. With no lawyers involved, the focus can be on the facts.
  • A small lodgement fee will be required (around $500).

There’s a lot of detail still to be sorted. We will be following this closely and will seek to make active input on the detail. We hope the government will establish the new Tribunal before the next election.

Just a note: If you think that there aren’t many tax disputes, in just one year, 2012-13 for example, the ATO issued 85,000 garnishee notices (that is, forced payment of alleged debts).

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.

Campaign started for small business tax tribunal

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Regular website visitors will have followed our campaigns on the tax front. In fact we’ve been campaigning on tax issues since we began in 2000.

Our years of experience and knowledge came to a head late last year in the successful legal defence of independent IT contractor Rod Douglass. In court the ATO admitted that its allegation of ‘evasion’ against Rod was ‘baseless’. It dropped some $400,000 in tax claims against him. We have more legal cases pending in 2017.

All this experience has taught us that major change is needed in the ways in which small business people are treated by the Australian Taxation Office.

We have formulated a vision of an independent Small Business Tax Tribunal.

We have started the campaign. Early results are:

We are in advanced talks with other major policy influencers and decision-makers.

Here’s an overview of the idea:

Tax tribunal for small business and individual taxpayers

A low cost, non-adversarial, independent, tax dispute-resolution procedure for small business people. The proposal below is modelled on the current Immigration Tribunal.
  • Tribunal independent from the ATO, made up of tax and legal specialists.
  • Tribunal determination would be required before a matter could go to the courts (AAT or Federal).
  • A small business applicant would pay a modest fee (say, $1,600) for a hearing.
  • Lawyers could not represent either the ATO or the small businessperson in any hearings.
  • The Tribunal would review the ATO’s allegations against the small businessperson with a view to a correct application of tax law.
  • The small businessperson could present his or her case.
  • The Tribunal would make a decision binding on the ATO.
  • If the Tribunal made a decision in favour of the small businessperson, the person would receive a rebate of (say, $800) on their lodgement fee.
  • If the Tribunal made a decision against the small businessperson the person would retain the right to appeal to a court.

The Inspector-General of Taxation is an office that could probably have its powers extended to include those of a Small Business Tax Tribunal.

As the campaign gathers momentum, we’ll put the details on our dedicated Taxation page.