Tax & ATO News Australia

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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

Inspector General of Taxation criticises ATO competence

The Federal Assistant Treasurer has released a long awaited report from Ali Noroozi, Inspector General of Taxation, into the conduct of audit officers in the ATO. Unsurprisingly, the report is highly critical of the ATO.

Susannah Moran, of The Australian, reports:

Assistant Treasurer David Bradbury yesterday released a December report by Inspector General of Taxation Ali Noroozi into issues surrounding the audits of small and medium enterprises (SME) and high wealth individuals (HWI).

"This review was carried out in response to concerns that larger SMEs and HWIs may be unfairly treated and subject to unnecessary compliance costs, delays and inappropriate conduct as well as lack of commercial awareness and technical knowledge of ATO staff," Mr Noroozi said. (The full story is behind The Australian’s paywall)

It is curious that an unfavourable report given to the Federal Government in December is only released by the Assistant Treasurer the day before Anzac Day. “Putting out the trash”, I think that is called if I remember my Politics 101 lessons correctly (ok, West Wing).

The report includes the following conclusion:

“...the level of disputation, weight of objections upheld and the proportion of liability reversed on review indicate a high incidence of unsustainable initial ATO compliance positions," the report says. "In a number of situations this is imposing very significant compliance costs on taxpayers for tax positions that on a more considered view should not have been raised.” (Read the full report on the Inspector General of Taxation website here)

This is not news to the large number of Australian taxpayers who are at the receiving end of “unsustainable initial ATO compliance positions”. The worst thing is that when the ATO gets it wrong, it’s you as the taxpayer, who has to prove your case. You are guilty until you prove yourself innocent.

As much as I respect Mr Noroozi, the phrase “very significant compliance costs” does not begin to cover the financial, emotional and time pressures of having to prove yourself against the combined resources of 22,000 ATO employees.

And that does not even begin to touch on the reputational damage people suffer when going through an ATO dispute.

One client said to me recently that he is desperate for people to hear his story (because he has been treated appallingly at the hands of the ATO), but he does not want people to think he is a tax cheat. He has paid his taxes for decades, always followed the advice of his accountant, and never done the slightest thing wrong, but because he does not meet the ATO benchmarks for his industry, he has been hit with a huge default assessment, which he has to disprove. In the meantime, the ATO can, and has, issued garnishee notices against his bank accounts and forced him to sell up property.

If you, or your clients, are faced with an audit, even if you think there should be nothing to worry about, it pays to get someone like us at SMH Tax Lawyers to have a second look at the matter early - before you are faced with a massive, incorrect tax bill that you then have to fight.

Posted in: Tax & ATO News Australia at 26 April 12

This report doesn't come as a surprise to us either. The ATO and their benchmark analysis is totally inadequate and it is a situation of guilty until proven innocent. The main issue in these matters is their lack of understanding of how business operates. They just have no experience at all when it comes to everyday business transactions. Look forward to more comments on this topic in the future
Comment by Michelle Gargar lodged 26 April 12

I fully understand the plight of Ms Michelle Gargar. I have been in a two year battle with the ATO after an audit. I have number of points that I would like to raise. I informed the ATO at the time of the audit that I was deploying to Middle East on operations for three months and and it would be difficult to communicate with me. The auditor continued to Email me and question me through out the first two months of my deployment. I regularly informed her I did not have my documents and all information was to the best of my knowledge. With this she proceeded to made the her assessment and enforced a fine of $7700. Four months later she admitted that she had made an error but I had to go through the lengthy process of submitting an Objection. Secondly as a member of the Defence Force, I am exempt from Medicare as my wife pays the 1.5% out of her lower pay for the remainder of the family. It was during the objection process that I informed another auditor and her supervisor of this case but they still added it to my ever increasing bill. My overall assessment of the situation is that the ATO auditors make a quick assessment impose the penalty and are forever passing on the buck.
Comment by Anonymous lodged 27 May 12