Tax & ATO News Australia

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External Scrutiny Into the ATO

The house of representatives committee on taxation is currently accepting submissions into the external scrutiny of the ATO. This is after recent comments from the Commissioner of Taxation, Chis Jordan that there is too much scrutiny of the ATO. 

Encouragingly, Liberal Senator, Bronwyn Bishop, has resisted this call, saying that given the ATO’s role is to collect money and this has the potential to effect peoples’ lives, parliamentary scrutiny should remain.

More critically, the power that the ATO has to collect money is virtually unlimited, as I have written about before. This power, coupled with a culture that oscillates between rabidly aggressive (at worst) to uncompromising (at best), means that there is always a real risk that an individual ATO officer will go too far and destroy someone’s life in the meantime. This has happened, and I have personally been involved in many such cases, including cases that are deserving of compensation, so badly has the ATO behaved.

The Inspector General of Taxation, Mr Ali Naroozi, does an excellent job of scrutinizing the ATO, with limited resources. Mr Naroozi is a sensible and appropriately skeptical watchdog and needs more scope to review what the ATO does, not less. It would be an absolute disaster if the parliament was convinced that the ATO should be unsupervised.

If parliament agreed with the Commissioner of Taxation in this regard, the result will only be worse for taxpayers, including in particular those many taxpayers who are ultimately showed to have done nothing wrong. There must be consequences if the Commissioner’s actions cause an individual who has not avoided tax at all to lose their business, their house or worse. This has happened, and must not happen again.
 

Posted in: Tax & ATO News Australia at 22 March 16

ATO Annual Report

On 1 December 2015, the ATO released its annual report for 2014-15. The report provides statistics, details and commentary on the ATO’s performance across a number of key areas. It also showcases the ATO’s reinvention and recent switch to a more commercial approach to interaction with taxpayers, with a view to achieving better and more sensible outcomes. At the outset of the report, Commissioner Chris Jordan summarises this new way of thinking in his personal review:


“With the intent of building community trust and confidence, we shifted the way we interact with clients and stakeholders to be more collaborative, more relationship-oriented, more outcome and future-focused.”


The report goes on to list significant achievements of the past year, including improvements to the ATO’s dispute resolution process with early engagement, use of independent facilitators, increased alternative dispute resolution, and new settlement guidelines. Continuing to improve results in prevention and early resolution of disputes is also listed as an ATO goal looking ahead. Indeed, this is reflected in a number of statistics made available in the report:

 

  • The ATO settled over 1,000 cases in the 2014-15 year, compared to around 390 the year before. 84% of these were settled prior to litigation, compared to 77% in the 2013-14 year.
  • Then, in litigious cases, the ATO also settled 80% of all court cases prior to any hearing.

 

This not only reflects the ATO’s new commercial approach to dispute resolution, but also a more measured approach to litigation, and the cases the ATO is prepared to contest. Critically, this saves time and money for all parties, where previously a dispute may have spiralled out of control until a Tribunal or Court decision.

We are involved in many negotiated disputes and applaud the ATO’s reinvention in this respect. However, while the ATO grapples with this transition, remnants of the old ATO mindset remain. This is particularly evident in the continuing aggressive and inappropriate use of wide debt recovery powers, and gung-ho auditors looking to make a good impression.

Ultimately, the 2014-15 annual report shows the ATO is taking steps in the right direction at the executive level, but on the front lines, there is still plenty of work to be done.

            

Posted in: Tax & ATO News Australia at 03 December 15

Culture Change & The Reinvention Of The ATO

Anyone who has received an email from the ATO recently will see that their new email sign offs proudly state “We’re Reinventing”. At least sometimes they do - I suspect some ATO officers remove this logo in some correspondence.

And therein lies the problem with cultural change in an organization as large and entrenched as the Australian Taxation Office. I think the Commissioner, Mr Chris Jordan, is brave and visionary in trying to reinvent the ATO into an organization that is more approachable and responsive to taxpayers. A significant number of ATO officers, particularly in the Review and Dispute Resolution (‘RDR’) section of the ATO are on board with this new approach.

I shared a panel with two Assistant Commissioners on Friday 28th August 2015 in Brisbane to discuss RDR’s approach to mediation and their own project, in-house facilitation.

In-house facilitation is a form of mediation run by ATO officers who truly do act independently. I think this is a brilliant innovation and at its best, works very well. I have been involved in several facilitations, all with great success.

I am greatly concerned, however, that the good intentions of the Commissioner and those in RDR and the goodwill being developed by this approach is being eroded by some people within the ATO who do not believe in it. One matter in particular suggests to me that some within the ATO are prepared to walk away from a concluded deal from a mediation.

Hopefully these issues can be resolved and I look forward to hearing from the RDR Assistant Commissioners as to how they hope to address this problem in the future.
  

Posted in: Tax & ATO News Australia at 17 September 15

New Powers For ATO

I'm sure by now you have seen the recent press releases by the Tax Commissioner and the Assistant Treasurer announcing the Government's intention to provide the Commissioner with a statutory remedial power that will allow for resolution of certain unforeseen or unintended outcomes in taxation and superannuation law. If not, here is the original media release by the office of the Assistant Treasurer;

The Government is committed to providing more certainty and better outcomes for taxpayers and reducing the regulatory burden on individuals, business and community organisations. The complexity of Australia’s tax law, combined with evolving business practices, has increasingly led to unintended outcomes. Even though the Commissioner of Taxation endeavours to interpret the law to give effect to its purpose or object, there are instances where this is not possible.

To address this, the Government will provide the Commissioner with a statutory remedial power to allow for a more timely resolution of certain unforeseen or unintended outcomes in the taxation and superannuation law.This will allow the Commissioner to make a disallowable legislative instrument that will have the effect of modifying the operation of the taxation and superannuation law to ensure the law can be administered to achieve its purpose or object.

There are similar legislative instruments making powers in Commonwealth law currently granted to the Australian Prudential Regulation Authority (APRA) and also the Australian Securities and Investments Commission (ASIC). The power will be appropriately limited in its application and will only apply to the extent that it has a beneficial outcome for taxpayers. It will only be available where the modification is not inconsistent with the purpose or object of the law and has no more than a negligible revenue impact. The Commissioner will consult publicly prior to any exercise of the power. This power provides a mechanism to deal with some aspects of complexity in the tax law, and provides more certainty and better outcomes for taxpayers. Josh Frydenberg, Assistant Treasurer.


My perspective on this announcement of new powers for the ATO, and the intention to correct any deficiencies in taxation and superannuation law, is that the law is complex, as we all know, and quite often unintended loopholes operate against taxpayers.

I have been involved in a number of cases, particularly involving superannuation, where it was clear that no mischief was done, but the tax law punished the taxpayer anyway. In most of those cases, the ATO has told me that they would love to help, but their hands are tied because the legislation won’t let them assist. In all cases we worked our way through it, but it was messy and took more time than it should have.

This new legislation will give the ATO power to correct those kind of unintended consequences where the legislation falls down. There are safeguards, thankfully, which require the ATO to only exercise its power to the benefit of taxpayers.

There will be legal purists who will quibble about providing the ATO with powers to make laws, even when those laws are beneficial to taxpayers, as arguable breaching the doctrine of separation of powers between the executive and the legislative arms of government. Overall, however, I think this is a sensible approach and as long as it is closely watched, should only be beneficial to taxpayers. 

Posted in: Tax & ATO News Australia at 04 May 15

TAXPAYERS STRIKE BACK

Federal Government slams the ATO approach to tax disputes.

The Federal Government yesterday published a bi-partisan report into the ATO’s conduct of tax disputes. I gave evidence to the House of Representatives committee on this issue last year, much of which was extensively quoted in the report. The report is damning of the ATO’s conduct in tax disputes. Unsurprisingly, I whole heartedly agree, and also I agree with the recommendations.

As any of you who have followed my rantings (sorry, my blog) over the years will know I have been banging on about this forever, for those of you who haven’t, strap yourselves in, it’s a pretty wild ride!

Currently Australia has a reverse onus of proof in tax matters. The ATO just has to say “we think you owe $1m in tax” and then the taxpayer has the job to prove that’s wrong. Actually, it’s even harder than that, it’s also the taxpayers’ job to prove what the right income is, not just that the ATO was wrong. So taxpayers are guilty until they prove themselves innocent. Yes, you read that right, we live in a country where you are guilty until proven innocent (at least as far as tax disputes go). Surely I am not alone in feeling incensed by this disregard of one of our most fundamental principles of law.

This has all kind of ramifications, when you consider the cost of litigation to prove yourself in court, which significantly favours the ATO (who have huge litigation budgets, and full time staff to do nothing else, who aren’t likely to be personally ruined by the outcome). But the cost is not just monetary, the time and stress of this process takes its toll too.

In the words of Bert van Manen MP* “The committee received evidence that taxpayers suffer enormous emotional stress. Disputes can contribute to marriages breaking-up,”

Add into this the fact that the ATO can, and does, commence debt recovery proceedings to take people’s property, bankrupt them, stop them travelling overseas and seize their bank accounts as soon as the assessment is raised, and before the matter is proved in court. Many of my clients have had problems with this, which I’ve blogged about over the years.

Worse still are allegations of evasion.

This is all about how long the ATO has to review your assessment. Generally, the ATO has four years (for SME type taxpayers) to amend an assessment – once you are outside that four year period, you are safe. But the ATO has an out – if they say that there has been fraud or evasion (ie deliberate action by the taxpayer to understate their taxable income), then the ATO can amend at any time going back well beyond four years.

The problem with this is that the onus is still on the taxpayer to prove their position – now how do you prove that you did not deliberately understate your tax? And bear in mind that you only have to keep records for five years, what happens when the ATO wants to go back ten years? How do you prove your position then?

Example;

The ATO says,“you received this $100k into your bank account in 2001 we’re going to call that your income and because you deliberately failed to disclose it in your tax return, we will assess you and now you owe us (with plus penalties and interest), $300k””

You reply, “But it was given to me by my grandmother just before she died”

They say, “Prove it”.

If you can’t prove it – because there’s no paperwork – then you are in serious trouble.

The issue as I put it to the Committee is that,

“there are still too many ATO officers whom I would describe as zealots and who seem to approach their duties as auditors or objection officers or debt collectors as though all self-employed people or business owners are tax cheats and should not be believed.
…In too many cases that I see, an ATO auditor will form a very early conclusion about the bona fides of a taxpayer. After that view is formed, no amount of evidence or legal submissions can convince some auditors that amended assessments should not issue to increase the amount of tax payable.”

Not surprisingly some of the claims made by others during the inquiry were that ATO auditors exhibited ‘digging-in’ or intransigence, becoming emotionally invested, not being prepared to accept that a taxpayer could be right on a matter of fact and bringing up trivial issues late in an audit after the taxpayer rebuts the initial ATO position.

The issue that doesn’t get spoken about enough is the toll this takes on a person’s mental and emotional health, there was evidence given during the inquiry that was quite frankly heart-breaking.

“Mr Pilgrim, a retired builder, stated that the dispute had a substantial negative effect on both his marriage and his business:
We went from 2007 through to 2010. The whole of our life was put on hold. My business suffered because I did not know from one day to the next whether I was going to be in business–I didn’t know if the ATO was going to send me bankrupt. It cost me my business and also my marriage, that part of it… I spent months backwards and forwards with the ATO, disputing the facts with my figures. That is why they reduced it back to that amount of money.

Ms Judy Sullivan from PricewaterhouseCoopers (PwC) advised that taxpayers have committed suicide at the conclusion of a tax dispute:

I am sure you will be hearing from a number of taxpayers about the emotional toll of these sorts of things. I have had clients in the past who have committed suicide after coming out the other end of an audit for a very serious allegation that was in fact settled. There is stress on families because of the length of time and things like that. You see a lot of marriage break-ups and emotional stress from these sorts of allegations.”

In response to this evidence, Commissioner Chris Jordan stated, ‘We do know that delays in dispute resolution have real, physical and sometimes paralysing impacts for business and individuals.’ And Second Commissioner Andrew Mills had this to say, ‘For those who have been adversely affected by our poor handling of their disputes, I would like to extend my sincere apologies.

It’s a great start, and I do appreciate the recent improvement in the ATO’s handling of tax disputes but it has to translate to all ATO employees. There are still far too many recalcitrants from the old school of zealotry, and until these zealots are forced to embrace the new ATO approach, lives will still be destroyed.

Legislative change is needed. With the release of the Tax Disputes Report, finally, the government recognises this need. Amongst its 20 recommendations, one of the proposed changes is a recommendation to reverse the burden of proof position, so the responsibility is on the ATO, forcing it to prove that you committed tax evasion – that is, that you deliberately did something to reduce your income.

“Recommendation 7
The Committee recommends that the Government introduce legislation to place the burden of proof on the Australian Taxation Office in relation to allegations of fraud and evasion after a certain period has elapsed. The change should be harmonised with the record keeping requirements. These periods could be extended, subject to concerns of regulatory costs on business and individuals.”
This is a massive step in the right direction as it will make the ATO actually look for real evidence of wrong-doing, rather than just make the assessment and leave it to the taxpayer to prove.

In the report you will be able to read the evidence I gave during the inquiry, stating my belief that “under current laws and systems, it is too easy for the ATO’s powers to be misapplied”. This is obviously something that I feel very strongly about, and I will be pursuing this over the coming months, and I hope you will bear with me as I rant about it in future articles.

I sincerely hope that these recommendations are quickly adopted by parliament and legislation is quickly introduced and passed.


*Committee Chair of The House of Representatives Standing Committee on Tax and Revenue

Posted in: Tax & ATO News Australia at 27 March 15

Reinventing the ATO

The Commissioner of Taxation, Mr Chris Jordan, announced today at the Tax Institute National Convention, that he wishes to reinvent the ATO. Before you roll your eyes and pass this off as a publicity gimmick, take a look at what he has said.

In his words:

"We’re looking to reinvent the ATO, to transform how we go about our cure business, and make the ATO a contemporary and service-oriented organization – to be a leading agency, relevant and response to the expectations of the community and the government.”

Although this sounds like fairly bland, bureaucrat-ese, I have been given the opportunity of some insider perspective through my interactions with the ATO at recent round-table consultations, which has led me to believe that there is a genuine attempt to change the culture, at least at the higher levels of the ATO. Whether (and when) this filters to the level of ATO officers that most commonly deals with my SME and affluent family group clients remains to be seen.

 

The Commissioner, however, must be applauded for these mooted changes, and if it comes off, text books about organizational cultural change will be written on this for years to come.

 

"Everybody has accepted by now that change is unavoidable. But that still implies that change is like death and taxes — it should be postponed as long as possible and no change would be vastly preferable. But in a period of upheaval, such as the one we are living in, change is the norm."
— Peter Drucker, Management Challenges for the 21st Century 

 

In the meantime, however, the most we can safely say is that there has at least been a recognition that the culture at the moment is perceived as:

• Hierarchical
• Siloed
• Bureaucratic
• Risk adverse

Sound familiar? Anyone who has had any interaction with the ATO over the last fifteen years will be nodding in agreement. That the ATO has recognized this is, by itself, a fantastic step in the right direction.

One practical issue that the ATO seems to be firmly embracing is the need for a better settlement process. In the past the ATO has allowed positions to become entrenched resulting in costly and stressful litigation. As our experience shows, the ATO has often got it wrong in the past and we have taken them to court on behalf of our clients on many occasions to prove it.

 

While beating the ATO in court is satisfying at one level, I personally prefer getting practical and worthwhile outcomes for my clients through early settlement. Fortunately the ATO now appears to be recognizing the value in this and has embraced early settlement – at least in principle. I have been involved in many recent settlements with the ATO (one recent one went until 11.00pm at night) and have achieved fantastic results for my clients, without the need to go to Court. Perhaps the ATO is capable of the change it so obviously needs within its cultural mindset, only time will tell but I certainly hope this proposed change in the ATO is genuine and that we can look forward to a lot more early settlements.
 

Posted in: Tax & ATO News Australia at 20 March 15

New Commissioner of Taxation flags changes to the appeal process

Chris Jordan has only been in the top job at the ATO since 1 January 2013 and he has already identified that the current tax appeal process is not independent and needs to be fixed.
 
Tax appeals are currently heard in first instance by ATO officers and this process must be exhausted before an independent body (such as the Administrative Appeals Tribunal or the Federal Court) can hear a tax appeal.  This can take months (even years) and cost the taxpayer enormous amounts of money. There has been significant criticism of this process as it is not independent. There are examples of ATO officers who hear the tax appeal simply rubber stamping the work of the auditor. Worse, there have been allegations that the ATO has benchmarks for this process that require ATO officers to knock back 80% of appeals, rather than judge them on their merits.
 
The current system is clearly broken and needs to be fixed. The new Commissioner has taken a step in the right direction by moving towards an independent division, although it appears that this division will still be within the ATO.  It will be interesting to see whether this new appeals division really will be independent.
 
Small business taxpayers, many of whom I have acted for against the ATO, will rightly point out that this is all very interesting from an administrative law perspective, but how will things change for those taxpayers who have been subjected to the delays, cost and institutional biases of the current system?  Now that the new Commissioner has acknowledged that the current tax appeal process is broken, will there be meaningful compensation paid to those taxpayers whose lives have been financially devastated by it?
 
I am calling on the new Commissioner to relook at all such taxpayers and make it a key priority of his tenure. The only way that confidence in Australia’s tax system can be restored is by ensuring accountability for ATO officers and that means that the ATO must pay adequate compensation to those taxpayers who have unfairly suffered at the hands of the ATO.
 

Posted in: Tax & ATO News Australia at 13 March 13

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Tax & ATO News Australia

Author: David Hughes

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