Tax & ATO News Australia

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