Tax & ATO News Australia

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


Tax & ATO News Australia

Author: David Hughes

Last 12 months