Tax & ATO News Australia

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Analysing the Systemic Issues Within the ATO

Those of you who have read my rants (blog) know by now my thoughts on the systemic problems within the ATO, but in light of the recent reports by ABC News and Fairfax Media about alleged abusive practices by the ATO, I thought it might be a good time to reiterate.

The alleged abusive practices that are currently in the spot light are not a universal problem, but it is definitely cultural, not an isolated occurrence. There are many officers in the ATO who are reasonable, understanding and work tirelessly to ensure the correct amount of tax is levied and collected. Unfortunately, there are also a significant number of ATO officers who have an institutional bias against tax payers, calling them crooks and cheats, and assuming facts before they are proved.

Regrettably, over many years, I have seen that once a preliminary view is formed, the ATO do not have good systems for reversing that view. The true separation of objection officers from auditors has been successful, in my view, but regrettably debt collection is an entirely separate issue. I have had many matters, including very recent matters, where aggressive debt collection has proceeded (including departure prohibition orders, supreme court proceedings and garnishees) despite there being clear and undisputed evidence that the debt being chased was well in excess of what was genuinely owed.

Tax is a notoriously perplexing area of law. However, few things are more perplexing than the inconsistent administration of the ATO’s disputed debt recovery policies. Strictly speaking, the Commissioner is free to take whatever steps whenever he pleases, regardless of the existence of a dispute – in fact, sections 14ZZM and 14ZZR of the Taxation Administration Act 1953 are explicit that liability to pay assessed tax is not suspended because of pending reviews or appeals. This means, once assessments are issued, the Commissioner is entitled to do what is necessary to recover.

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 statement made in the Sydney Morning Herald article, that the ATO targets small businesses more than larger ones because the latter have more money to fight back, certainly has a grain of truth to it. There is no doubt that big business has a greater ability to negotiate favourable payment terms compared with small business. The ATO is open about this – they identify the risk of recovery as being a major factor in aggressively pursuing debt collection. The difficultly is that when combined with the conclusive presumption that an assessment is correct, notwithstanding there being genuine grounds to dispute it, a perceived risk of recovery of an incorrect assessment means that small business taxpayers are frequently pursued for debts that are ultimately proved to be wrong. This does not happen at the big end of town.

When analysing the systemic problems at the ATO, there seems to be two things that can be done to set things right;

  • (1) no debt should be pursued while there is a genuine challenge to the validity of the debt; and
  • (2) if a taxpayer incurs costs in setting the record straight because of ATO errors, 100% of the taxpayer’s costs must be reimbursed.

Taxpayers by and large try to do the right thing. Australians are not tax cheats. Tax laws are horrible complex and even the ATO frequently changes its position on issues. Too easily differences in opinion, or even reliance on old ATO’s views, are considered to be ‘tax avoidance’. By all means the ATO should chase those who deliberately flout tax laws with the full force of the law, but don’t call small business owners tax cheats when they are trying their best to interpret on the fly laws which are neither simple nor well explained. If a mistake occurs, or there is a difference in interpretation, give small business owners the benefit of the doubt and the opportunity to sort through the issues without the threat of aggressive debt collection and financial destruction. 

Posted in: Tax & ATO News Australia at 10 April 18

Webb v Deputy Commissioner of Taxation [2017] FCA 1520

In this recent decision of the Federal Court, O’Callaghan J examines a self-represented taxpayers’ application for an extension of time to appeal from the Federal Circuit Court. This decision shows the importance of complying with the appropriate procedures in lodging an appeal and having an application with sufficient merits. With the greatest respect to Mr Webb this case demonstrates the difficulty of representing yourself in the Federal Court.

Following a sequestration order made on 30 May 2017 by the Federal Circuit Court, the taxpayer filed a notice of appeal on 19 September 2017, outside of the 21 day period provided under Rule 36.03 of the Federal Court Rules.

O’Callaghan J in his decision reiterated the well-established principles for allowing an extension of time, which include:

  • whether the applicant has an acceptable explanation for the delay;
  • whether the respondent would suffer prejudice in light of the delay should an extension be granted; and
  • the merits of the substantial application.

In the present case, O’Callaghan J found the taxpayer’s argument that the incorrect form was filed did not demonstrate an acceptable explanation for the delay.

Furthermore, O’Callaghan J found that there was no reasonable prospect of success of the appeal as the contentions outlined in the taxpayer’s affidavit were “self-evidently misconceived”. In the taxpayer’s affidavit, he contended that:

  • the Registrar of the Federal Circuit Court did not have authority to adjudicate the matter;
  • the Deputy Commissioner of Taxation did not have the authority to prosecute the matter;
  • the Registrar had given undue weight to the Income Tax Assessment Act 1936 as it has not been lawfully enacted, as it does not have a proclamation certificate prescribed by the Constitution;
  • the Australian Taxation Office was not a legal entity;
  • the Deputy Commissioner of Taxation did not have standing;
  • the Federal Court did not have jurisdiction to proceed without a trial by jury;
  • the “Voice of the Australian Constitution” is relevant.

 

Co-authored with Ben Caratti
 

Posted in: Tax & ATO News Australia at 08 January 18

A great result for Crown Insurance Services Limited

On Friday 2 November 2012, the Full Federal Court delivered a judgment in favour of our client, Crown Insurance Services Limited and found for our client in a 2:1 decision.

 

In a rather technical decision, the Full Federal Court found that the ATO’s appeal was incompetent – that is, that the ATO should not have attempted to appeal the factual findings of the Administrative Appeals Tribunal which found, as a matter of fact, that the source of our client’s income was not in Australia.
 
Lander and Foster JJ dismissed the Commissioner's appeal, deciding the appeal was incompetent as the Commissioner did not raise a question of law for s44(1) purposes.  Their Honours analysed the authorities on this issue in great detail but did not address the substantive question once they concluded the appeal should be dismissed for want of jurisdiction.
 
Jessup J decided there was a question of law, as the facts found by the Tribunal must necessarily lead to the conclusion that Crown Insurance indirectly derived its income from Australian sources.  His Honour placed great weight on the adverb "indirectly" to distinguish this case from the authorities
 
This is a great result for this client who has been fighting with the ATO for over ten years.
 

Posted in: Tax & ATO News Australia at 05 November 12

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Tax & ATO News Australia

Author: David Hughes

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