Tax & ATO News Australia

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Ham and Tax Practitioners Board (Taxation) [2017] AATA 1642

An appeal has been lodged by the applicant tax agent against the decision of Ham and Tax Practitioners Board, whereby the AAT affirmed the decision of the Tax Practitioners Board (TPB) to reject Mr Ham’s application for renewal of registration, on the basis he is not a ‘fit and proper person’ within the meaning of the Tax Agent Services Act 2009 (TAS Act). 

The TPB’s refusal to renew Mr Ham’s registration arose following the decision of Themis Holdings Pty Ltd v Canehire Pty Ltd & Anor [2014] QSC and the subsequent appeal. In summary, Philippides J found Mr Ham, as the sole director of Canhire Pty Ltd, knowingly breached his fiduciary duties and acted dishonestly in paying away proceeds of a sale, which lawfully belonged to beneficiaries of a trust.

Accordingly, on the basis of Mr Ham’s conduct following the Supreme Court decision, the TPD rejected Mr Ham’s application to renewal on the grounds he was not a ‘fit and proper person’.

Subsequently, Mr Ham sought to have the TPD’s decision reviewed by the AAT.

In determining whether Mr Ham satisfied the definition of a ‘fit and proper person’ for the purposes of the TAS Act, the Tribunal held that it was entitled to rely on the findings of the Philippides J in the Supreme Court judgement as evidence for its own findings.

The Tribunal in concluding it was entitled to rely on the findings of the Supreme Court referred to s33(1)(c) of the Administrative Appeals Tribunal Act 1975 (AAT Act), which provides ‘the Tribunal may inform itself on any matter in such a manner as it thinks it appropriate’.

Accordingly, in conjunction with the Tribunal’s objectives in section 2A of the AAT Act, and present case it concluded that:

  • the most expeditors and efficient means by which the Tribunal can inform itself is by reference to the Supreme Court findings;
  • it would be too costly and time consuming to effectively conduct a re-hearing; and
  • the potential unfairness to Mr Ham was reduced as he was represented in both proceedings and had the opportunity to lead further evidence.


With regard to the question of whether Mr Ham is a fit and proper person, the Tribunal considered Mr Ham’s conduct ‘inconsistent, not only with the qualities of strong moral principle, uprightness and honestly, but also with the atmosphere of mutual trust, that underpins a tax agent’s relationship with his or her clients, the ATO and the Tax Practitioners Board’.

The Tribunal further recognised that Mr Ham failed to take steps to redress his actions, despite having ample opportunity to do so.

Mr Ham sought to argue that he is a ‘fit and proper person’ as he has expressed insight and contrition. However, the Tribunal was not persuaded for the following reasons:

  • Mr Ham’s contrition was late, his letter to the Tax Practitioners Board contained no expression of contrition or remorse;
  • It was inconsistent for Mr Ham to state he “unreservedly” accepts the Supreme Court’s decision, yet he continues to maintain his own version of event;
  • It was inconsistent for Mr Ham to realise the unethical nature of his conduct yet contest it at future disciplinary proceedings; and
  • Mr Ham’s proposed systems to prevent future misconduct demonstrated an oversimplified of the conduct found by the Supreme Court

At the hearing, Mr Ham indicated he would be prepared to abide by two conditions should his registration be renewed:

  • furnish a written report to the TPB at the end of each month for 12 months identifying any transactions he or his associated entities entered into; and
  • undertaking a Professional Development Business Ethics Training Course.

The Tribunal in response to the restrictions proposed by Mr Ham, found that ‘the imposition of conditions is not intended to be an alternative avenue for an applicant who fails to satisfy the standard of fitness and proprietary’.

Posted in: Tax & ATO News Australia at 16 November 17

Shord v Commissioner of Taxation

 The case is reasonably unremarkable for any legal or factual analysis, but it does provide a good insight into the attitude of the ATO towards acting as a uncompromising litigant, which makes the most of every possible procedural point, as opposed to a model litigant as they are required.

Justice Logan from Qld made some fantastic comments (with respect);

 

The standard of fair play expected of the Crown and its officers in litigation is a standard in keeping both with the avoidance of behaviours that, in an extreme form, led to the civil war and with the later constitutional settlement. Once this heritage is understood, the requirement for its observance is, or should be, as Griffith CJ stated, “elementary”.

 

I note that Robert Gottleibsen also discussed this case and raised these comments in yesterday’s Australian.

 

Shord v Commissioner of Taxation [2017] FCAFC 167


Between 2006 and 2011, Mr Shord worked on various overseas assignments as a supervisor for foreign companies in the oil and gas industry. He did not lodge tax returns for that period, believing he was a non-resident. The Commissioner believed otherwise and issued amended assessments including all Mr Shord’s foreign income. The Commissioner disallowed Mr Shord’s objection.

The Tribunal found in favour of the Commissioner. The Tribunal found Mr Shord was a resident and, in particular, that his income was not exempt pursuant to s 23AG of the ITAA36. This provision exempts income of residents engaged in foreign services for a continuous period of not less than 91 days.

At the onset of the hearing, counsel for the Commissioner withdrew a contention that Mr Shord’s circumstances failed to meet the legislation’s definition of ‘foreign services’. The Tribunal nonetheless found that Mr Shord did not meet this definition. Fletcher v FCT is authority that a taxpayer is denied procedural fairness when a Tribunal makes a decision on the basis not argued by any party.

Procedural fairness was not raised on appeal to the Federal Court. Instead, the first two questions of law related to the proper application of s 23AG. These hinged on the third question which was whether the Tribunal had jurisdiction to decide whether Mr Shord was engaged in ‘foreign services’. The fourth question was whether Mr Shord was entitled to offsets for foreign taxes paid. The primary judge found against Mr Shord on the third and fourth question and did not therefore consider the first two.

On appeal to the Full Federal Court, procedural fairness was finally raised by Mr Shord as the first ground in an amended notice of appeal. The Commissioner initially objected to the amendment but eventually conceded the ground to Mr Shord. The Full Court thus remitted the matter to the Federal Court to decide the two questions about s 23AG. Unlike the majority, Justice Logan reprimanded the Commissioner, as a representative of the Commonwealth, for its failure to act as a model litigant and raise the crucial issue earlier.

The second ground related to Mr Shord’s entitlement to tax offsets. The Full Court found that Mr Shord did not produce any evidence as to what, when and how much foreign tax he paid, and that neither the Tribunal nor the Commissioner had an obligation to help him adduce evidence to the contrary.
 

Posted in: Tax & ATO News Australia at 01 November 17

Moignard And Commissioner Of Taxation:

This is an interesting decision of the AAT in relation to trust distributions. Much of the analysis it unsurprising, but the trust disclaimer argument would have been of great interest had it had a better run.  With the greatest of respect to Mr Moignard this case also shows the difficultly of representing yourself in tax cases, even before the case gets to the more formal jurisdiction of the Federal Court (eg, on objections with the ATO, or at the AAT). Raising matters at the last minute never find favour with the courts and tribunals, and getting early advice about the potential arguments is critical.


Quick Summary:

  • Commissioner issued an amended assessment for $243,959.84 and imposing a penalty of $187,043.45 for 2007-8 FY.
  • Taxpayer sought to introduce a ‘capital argument’, which the tribunal disallowed.
  • Commissioner advanced alternative argument that the taxpayer was presently entitled to one third of the $480,476, which was the net profit from the sale of a property held by the trust. On the basis that the default provision of the RST Deed provided where there has been no exercise of trustee discretion to pay, apply or set aside the Deed had the effect of making the taxpayer and his two children entitled to the net profits in equal shares.
  • Bean DP found that the default clause of the trust deed operated, the amounts assessed by the Commissioner were excessive being “$51,671.10 versus $195,814.20”.
  • Bean DP found the written resolution and the “certificate” did not support a valid distribution to another trust as they were produced well after financial year in question.
  • Bean DP found the taxpayer’s true entitlement did not come to his knowledge before making the disclaimer, thus it was not effective.
  • Bean DP agreed with the Commissioners Moignard application of 50% penalties for the taxpayer’s recklessness as he had the capacity and resources which should have enabled him to arrive at a better and more accurate understanding of what his true taxation liability was. 


Article Summary:

This is an interesting decision of the Administrative Appeals Tribunal (‘AAT’) in relation to trust distributions. Much of the analysis is unsurprising, but the trust disclaimer argument would have been of great interest had it had a better run.
 

On 18 October the AAT released its decision in relation to the rehearing of Moignard and Commissioner of Taxation, following an appeal to the Federal Court.
 

Upon the rehearing of the matter, the Commissioner sought to advance his alternative argument that the trustee did not exercise their discretion to pay, apply or set aside the trust income. On this basis, the default provisions of the trust deed would apply to deem trust income be distributed equally between the taxpayer and his two children.
 

In light of the Commissioner’s abandonment of his primary argument, the taxpayer sought to include a new argument, which Bean DP dismissed given it was raised at a very late stage of the proceedings.
 

The taxpayer sought to argue that it had made a valid distribution during the 2007-8 financial years, which was supported by a written resolution and certificate made in April 2011. Bean DP agreeing with the Commissioner concluded that the resolution was not made until well after the end of the relevant accounting period, and therefore could not amount a determination to distribute.
 

Additionally, the taxpayer contended that the taxpayer disclaimed the purported distribution of funds” from the sale of the property. However, the Tribunal rejected this argument, finding that the disclaimer did not relate to the actual share of the taxpayer’s trust income and was clearly not made on the basis of an understanding of the operation of the deed or the share of the trust income to which he was entitled.
 

Bean DP found that in order for a disclaimer to be effective, the disclaimer would have to indicate or be made on the basis of an understanding of what the taxpayer’s entitle actually was.
 

One of the final issues the Tribunal addressed was the appropriate penalties. The Commissioner sought to apply a 50% administrative penalty for Mr Moignard’s recklessness in complying with tax laws. The Tribunal taking into account Mr Moignard’s extensive qualifications and commercial experiences found that he “had capacity and resources which should have enabled him to arrive at a better and more accurate understanding of what his true taxation liability was.” Accordingly, the Tribunal agreed with the Commissioners application of a 50% administrative penalty.

In conclusion, Moignard and Commissioner of Taxation shows the importance of understanding the terms of a trust deed and ensuring the appropriate documents for distributions are recorded in the same accounting period.



 

Posted in: Tax & ATO News Australia at 25 October 17

In Pursuit of a Fairer System

 The Federal opposition seems to be searching hard for the glib soundbites. The latest attack is on expensive accountants, who only the uber-rich can afford, who use their superior accounting skills at high cost, to manipulate their clients’ affairs to pay no tax.


I came across a recent article in Accountants Daily which reported:


Last week, Bill Shorten delivered the opposition’s federal budget reply speech in which he proposed a cap on the amount individuals can claim as a tax deduction for the management of their tax affairs.


“In 2014-15, 48 Australians earned more than $1 million and paid no tax at all. Not even the Medicare levy. Instead, using clever tax lawyers, they deducted their income down from an average of nearly $2.5 million … to below the tax-free threshold,” Mr Shorten said.


“One of the biggest deductions claimed was the money they paid to their accountants, averaging over $1 million. That’s why a Labor government will cap the amount individuals can deduct for the management of their tax affairs at $3,000.”


The article goes on to make a point about “individuals potentially getting penalised for simply having to deal with a complex tax system and ever increasing requirements of the Tax Office”. I agree with this, and think that this policy is one of the most stupid ideas I have ever heard. Who advises these people?


I strongly doubt that anyone is paying north of $1m for annual tax advice, no matter how complex their tax affairs, or brilliant their advisor's advice.
What is much more likely is that these people have been involved in complex and aggressive audits, and have had to fight to prove their case against a huge team comprising the Commissioner of Taxation's in-house lawyers, external lawyers, junior barristers and silk.


Defending yourself in the face of this is incredibly expensive, particularly when you as a taxpayer bear the onus of proof. What most people don't realise is that barristers charge taxpayers a much higher rate than they charge the ATO. In circumstances where the ATO's audits are often little more than guesswork, debt recovery proceedings commence immediately, and the courts have continually maintained that the onus is on the taxpayer to prove their case and their correct tax position, then of course the cost of fighting the ATO is going to be huge.


To make this not tax deductible is simply ridiculous.


I will give you an example of how ridiculous and expensive audits can be: a few years ago, one of my colleagues was selected for audit. He had been doing alot of driving in a particular year, and the resultant (high) deduction triggered an audit. Fair enough. But the audit quickly blew into a full investigation of every item of income and expenditure this taxpayer had incurred. It took months. The accountant was of great assistance, and because absolutely everything was done correctly, the auditor eventually signed off without a single disallowance.


The accountant had done a huge amount of work and did it very well and efficiently. The bill was, none-the-less, eyewatering. My colleague paid happily in consideration of a job well done.


Guess what happened the following year? My colleague was again selected for an audit. Why? Because he had claimed so much the year before as a deduction for managing his tax affairs.


You would laugh if it wasn’t so frustrating.


Here's a better idea - limit the tax deduction for managing tax affairs by all means, but if the ATO starts an audit, provide the taxpayer a voucher for use on the accountant or lawyer of their choice, equivalent to the ATO's cost of the audit and any appeals (including external lawyers as well as the ATO wages and oncosts). In reality it should be much higher to factor in overheads and the Commissioner's disproportionate purchasing power, but even at only 100% of the ATO’s costs that will be a significantly higher figure than the corresponding deduction.


Or better yet, why don’t we limit the ATO budget for each auditto no more than $3,000, including overheads and a share of fixed costs.

Posted in: Tax & ATO News Australia at 23 May 17

Uber BV v The Commissioner of Taxation

Last Friday, the Federal Court held that services supplied under the uberX service constitute “taxi travel” within the meaning of s 144-5 (1) of the A New Tax System (Goods and Services Tax) Act 1999 (Cth).

 

To give context to this dispute, following the rise in popularity of the ride sharing platform the Australian Taxation Office (ATO) announced in 2015 that Uber drivers will have to register and pay GST, regardless of turnover. The general rule regarding registration is that an enterprise with a turnover of less than $75,000 is not required to register for GST. An exception to this rule is Section 144-5(1) which requires a person who is carrying on an enterprise of supplying ‘taxi travel’ to be registered for GST regardless of turnover. Section 195-1 of the GST Act goes on to define ‘taxi travel’ as ‘travel that involves transporting passenger, by taxi or limousine, for fares’.

 

The Australian Taxation Office (ATO) took the position that the Uber platform fell within this exception. However Uber disagreed with this position and sought a declaration from the Federal Court that the services provided by UberX drivers did not constitute taxi travel.

 

Applicant Submissions:


The applicant made submissions on the construction of ‘taxi travel’ claiming:

 

  • ‘Taxi Travel’ was intended to apply only to the taxi industry as the legislature did not seek to deal with this issue in any other industry.

  • The statutory context suggests that the words “taxi” and “limousine” bear a trade or non-legal meaning. Alternatively the ordinary meaning of the words “taxi” and “limousine” was heavily influenced by the underlying regulatory regime.
  • The disjunctive “taxi or limousine” in the definition of s195-1 provides that “taxi” and “limousine” have different meanings.

 

Using the above mentioned arguments on statutory construction, the applicant put forward factual arguments distinguishing Uber from Taxis. The applicant contended that Uber services did not display the essential operational features of a taxi, on the basis that Uber vehicles do not show markings, the access is limited to Uber licensees (App Users), payment systems and calculations differ and Uber drivers are not required to display a fare meter.

 

Respondent Submissions:


The respondent’s made submissions that:

 

  • “Taxi travel” is to be construed as a whole and connotes the transport, by a person driving a private vehicle, for a fare irrespective of whether the fare is calculated by reference to a taximeter.

  • The services supplied by Uber demonstrate the essential features of transport “by taxi” and “by limousine”.
  • The applicant incorrectly relied on the regulatory regimes applying to the taxi industry.

 

The Commissioner in support of its submission on the construction of ‘taxi travel’ used dictionary definitions to help identify the key features of a ‘taxi’ in ordinary understanding.

 

Furthermore the Commissioner made submissions that the difference between a limousine and a taxi was that a limousine is not calculated by reference to a taximeter and will need to be pre-booked. Therefore, “limousine” could apply to any hire car.

 

Decision:


Justice Griffiths “accepted the Commissioner’s submission that the word “taxi” is a vehicle available for hire by the public and which transports a passenger at his or her direction for the payment of a fare that will often, but not always, be calculated by reference to a taximeter”. In reaching this decision, consideration was placed on principles of statutory interpretation. Further to this the dictionary definitions the Commissioner relied upon provided the court with a supporting context of this interpretation.

 

However, Griffiths J rejected the Commissioner’s position that limousine was not confined to luxury cars. Instead the ordinary meaning of limousine “was a private luxurious motor vehicle which is made available for public hire and which transports a passenger at his or her direction for the payment of a fare”. Although the present matter involved a Honda Civic which did not meet this definition, Griffiths J recognised this position may be different in cases of other UberX drivers who do use luxury cars.


Ultimately this decision will impose huge compliance burdens on Uber and its drivers. Particularly Uber drivers will now have to register both an Australian Business Number and register for GST, charge an additional 10%, lodge Business Activity Statements and claim Input Tax Credits.

 

With this being another win for the Commissioner, it can be expected that there will be a crackdown in tax compliance within the ride sharing industry. 

Co-authored with Ben Caratti

Posted in: Tax & ATO News Australia at 09 March 17

Consultation paper September 2016: Proposed changes to penalties for small business and individuals.

The ATO has recently released a consultation paper titled ‘Proposed changes to penalties for small business and individuals.’ More information on the proposed changes can be found on the ATO website.
 

Essentially, under the proposed changes, the ATO will provide ‘one chance’ before applying a penalty in the following circumstances:

  • For certain small businesses and individual clients, the ATO will not apply penalties for false or misleading statements for failure to take reasonable care for errors made in income tax returns and activity statements, and
  • the ATO will not apply failure to lodge on time penalties for late lodgement of income tax returns and activity statements


The ATO is of the opinion that it is open to the Commissioner to exercise his general powers of administration to give effect to these changes, and therefore a law change is not required.

 

The following parameters would apply to this proposal:

  • The one chance policy would be available to small businesses (with turnovers under $2 million) and individuals, subject to some criteria, with eligible taxpayers being informed at the time that the ‘one chance’ opportunity is provided.
  • This policy would not extend to taxpayers who demonstrate reckless or dishonest behaviour, or those who disengage or cease communicating with the ATO during an audit or review
  • Those who receive their one chance will be given a clear explanation of their error, and what they need to do to get things right in the future.
  • After the one chance has been provided, failure to lodge on time penalties would automatically apply if lodgement was not received by the due date.


The ATO claims that this policy is designed to benefit the taxpayer, as the taxpayer will save time and money by, for example, avoiding the need to research penalty information, lodge objections, and of course, release from the penalties that would otherwise be imposed.

 

However, those with a more cynical eye, or those who have more experience in dealing with the ATO, will likely have a different idea about the ATO’s motives, as well as the possible effects of the proposed changes.
 

Firstly, it is possible that these new rules may encourage overzealous auditors to circumvent the one chance policy by pursuing taxpayers for the 50% penalty rate for reckless or dishonest behaviour where they would not have previously.
 

There are also areas of uncertainty which have not yet been addressed by the ATO. Say, for example, that a taxpayer has not lodged their returns for the 2012, 2013, and 2014 financial years. In light of an audit, would the one chance rule apply to all three years, or just to the first year, with penalties then being automatically assessed for the following years?
 

The ATO’s intentions surrounding future penalties after one chance has been given are also cause for concern, particularly in light of the ATO’s statement that,

‘After the one chance opportunity has been provided, failure to lodge on time would automatically apply if lodgement was not received by the due date.’

Whilst according to the legislation penalties do indeed automatically apply, the current opportunity to contact the ATO to explain the reasons for delay seeking an exercise of the Commissioner’s discretion to remit the penalty seems to be closed to a taxpayer who has been given ‘one chance’.
 

A taxpayer with good grounds to be treated leniently would have to pursue more formal legal avenues, which would likely mean greater costs and more time, a result that is antithetical to the ATO’s supposed intentions.
 

While these proposed changes may appear good natured and well-intentioned at first glance, it remains to be seen whether the likely results of the changes will result in a net positive for the taxpayers of Australia.
 

Posted in: Tax & ATO News Australia at 10 October 16

Freezing Orders and Disputed Debts: The Least of All Evils

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. This is what makes PS LA 2011/4 so important – taxpayers need certainty on what they can expect when an assessment is issued and have a genuine dispute, because the ATO does get it wrong, often with disastrous results.

The ATO’s practice statement PS LA 2011/4 attempts, with very limited success, to define and clarify the circumstances in which the ATO will seek to collect and recover disputed debts. Relevantly, paragraph 43 of PS LA 2011/4 provides the Commissioner of Taxation will agree to deferral of recovery action where the Commissioner considers that a genuine dispute exists in regard to the assessability of an amount, but it is unclear on what terms the Commissioner will agree to do so. The practice statement talks variously about 50/50 arrangements (payments of 50% of the underlying debt) and security, but does not make clear the circumstances in which these will be considered.

Regrettably, I have been involved in many cases where a taxpayer has a genuine dispute, and is later exonerated at the conclusion of legal proceedings, but the Commissioner nevertheless proceeds with one of the many debt recovery options available to him in the interim. These include, for example:

  • Bankruptcy. This ultimately achieves little in the way of recovering revenue, and can be fatal to a taxpayer’s legal challenge to the assessments the Commissioner relies upon to bankrupt the taxpayer, as the taxpayer’s rights to seek review typically vest with the trustee, or liquidator or administrator of a corporate taxpayer.
  • Garnishee notices. These are issued by the Commissioner to third party debtors of the taxpayer, which require the debtors to make payments directly to the Commissioner in lieu of the taxpayer to discharge the taxpayer’s debt. Notices can be issued to a myriad of third parties, including banks and companies. This can severely impact the taxpayer by diverting business profits, proceeds from the sale of real estate, and any number of other debts a taxpayer may rely on for their business and personal use.
  • Departure Prohibition Orders (or DPOs), which prohibit a tax debtor from leaving Australia, regardless of whether or not they intend to return, and can be issued where the Commissioner holds a belief on reasonable grounds that it is desirable to do so.

Of course, all are inevitably hotly contested by the taxpayers involved. This simply creates ancillary and costly legal proceedings that can cripple a taxpayer without contributing to the resolution of the underlying dispute. Wasting scarce resources on contested debt recovery proceedings is not in the interest of the Commonwealth or taxpayers.

If the ATO’s true concern is that the debt may not be recovered at all, and that objection proceedings are just delaying the inevitable, then surely the ATO must accept that something that preserves the status quo addresses all of their concerns. Freezing orders are a way of achieving this.

In my view, rather than bankruptcy, garnishee notices, DPOs, or other such irreversible actions, freezing orders are a far better way of addressing the ATO’s concerns that assets may be dissipated, while still allowing the taxpayer to prosecute their case. Instead of depleting the taxpayer’s assets and depriving them of their means to contest their tax liabilities, freezing orders simply preserve the status quo for a period defined by the court to mitigate the dissipation of assets pending a final determination and judgment. Such orders were employed in the recent case of Deputy Commissioner of Taxation v Greenfield Electrical Services Pty Ltd [2016] FCA 653, as well as a sequence of related proceedings in Deputy Commissioner of Taxation v Chemical Trustee Limited (No 4) [2012] FCA 1064 and Deputy Commissioner of Taxation v Hua Wang Bank Berhad [2010] FCA 1014.

Ultimately though, within the current scheme of the tax law, we rely on the good graces of the Commissioner in such matters, and much of the way a matter progresses through review and court processes depends on the attitude of the Commissioner of the day.

My view is that PS LA 2011/4 would benefit enormously from a safe harbour approach, and in my respectful suggestion, the taxpayer should always be within that safe harbour wherever there was a genuine dispute. Such an approach would reflect the ATO’s reinvention, as perhaps would an overarching statement that the purpose of debt recovery is to collect the correct amount of revenue - and, more often than not, reasonable minds will differ as to what that correct amount is.

Written in collaboration with Nicholas Dodds.

Posted in: Tax & ATO News Australia at 08 June 16

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

Taxpayers Still Guilty Until Proven Innocent

I have written previously on the highly-publicised culture change and reinvention of the ATO, and the steps being taken by Commissioner of Taxation Chris Jordan to modernise the ATO’s approach to review and dispute resolution. However, this has been against the backdrop of the immense debt collection and recovery powers wielded by ATO officers, documented abuses of these powers costing taxpayers their homes and businesses, and recommendations by the Inspector General of Taxation and parliamentary committees to rein in these powers and the potential for their misuse.

In March 2015, the House of Representatives Standing Committee on Tax and Revenue issued a report into tax disputes. After hearing stories from taxpayers and tax professionals who have witnessed ATO maladministration and its consequences firsthand, the Committee made a number of recommendations to curb the ATO’s powers.

The biggest and most significant recommendation of all is that the ATO should bear the legal burden of proving an allegation of fraud and evasion on the part of a taxpayer. Where the ATO makes a finding of fraud or evasion, it enables the ATO to go back indefinitely to raise assessments for years long past. This puts the taxpayer on the back foot from the outset by requiring them to disprove whatever nefarious scheme or mischief the ATO can concoct in its imagination, and forces the taxpayer to rely on aged records that may no longer exist in the task.

This is inconsistent with the operation of all other areas of our law, where the party making the allegation is required to prove that allegation – and you are innocent until proven guilty. But not in tax matters.

Surely then, even the ATO can agree that it is at least fair in some circumstances to shift the burden from the taxpayer to the all-knowing, all-seeing taxman, right?

Wrong. In December 2015, the government rejected the Committee’s recommendation out of hand, suggesting that:

“A shift in the burden of proof to the ATO after a certain period has elapsed would be counter-productive and encourage sham behavior by taxpayers associated with fraud and evasion.”

It also suggested that the fact that the Administrative Appeals Tribunal and the Federal Court consider whether the ATO position on this question is sustainable on the evidence before them in litigation deals adequately with the existence of fraud or evasion.

This is not an explanation that justifies why taxpayers should be unfairly prejudiced. A sham is where someone does something that appears to be one thing, but is actually hiding something else.

The real sham happens when the ATO manufactures a finding of fraud or evasion, without proper evidence, to allow them to tax to someone they do not have the power to assess.

The only real risk is that faced by the ATO: that the ATO would have to do its job better and be accountable to the taxpayer for its actions and decisions, supporting them with proper reasons and proper evidence. Evidently, this is something the government and the ATO are not prepared to do in a meaningful way here.

It seems to me that until the ATO is willing to come to the table and acknowledge the evidence and advice about the misuse of its powers, all the talk of a reinvention and a new way of doing business is exactly that – just talk.
  

Posted in: Tax & ATO News Australia at 20 January 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

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Author: David Hughes

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