Tax & ATO News Australia

ATO Wiretaps

The Federal Government is seriously considering giving the ATO wiretap powers, or more accurately, powers to access metadata, including stored phone calls, emails and SMSs.

A Government committee has argued that these powers are necessary to protect against serious crime, such as tax fraud, and noted that “Al Capone was caught through the tax system.” I kid you not.

I will leave the critique of an argument that leads from the premise of Al Capone to the conclusion of ATO needing more power to the logicians. My primary concern is that it is absolutely crazy to give the ATO more power when the Inspector General of Taxation and other Federal Government committees have already concluded that the ATO is abusing its current powers.

I have described them as monkeys with machine guns. This will potentially give the monkeys a surface to air missile.

It may surprise people that the ATO does not currently have the power to intercept telecommunications. There is a very good reason for this – the ATO currently must pass on the role of criminal investigation and prosecution to the crime authorities, specifically the Australian Crime Commission and the Australian Federal Police. Those authorities of course have the power to investigate all Federal crimes (including tax fraud), and can access telecommunication to do so.

However, there is a critical oversight role in that any warrant must be approved by a Federal Court judge. While this is quite easy to do in practice, it forces the bodies involved to turn their attention to the existence and seriousness of potential crime.

It is well established that the ATO can use its own significant investigative powers for the purposes of auditing and amending assessments. These powers can be (and are) used without any suspicion of wrongdoing – simply as a fishing expedition. The logic is that this is acceptable as far as it goes, because the ATO is simply raising assessments (although I have huge problems with this power being abused as well).

What happens when the ATO’s wide reaching powers are merged with the kind of powers usually reserved for criminal investigation and then only with the oversight of the courts? The power will be enormous, and the potential for abuse of that power will be correspondingly frightening.

I am genuinely concerned about the impact of these proposed changes on the rights of small businesses and individuals. As always with such measures, it is not the criminals who will be affected – there are already significant powers that can be used appropriately to catch the crooks. The people who will be affected are the kind of people I act for: people who do nothing wrong and are targeted by the ATO because of a data matching computer’s algorithm which no-one truly understands.

This is scary stuff.


  

Posted in: Tax & ATO News Australia at 28 September 15

Culture Change & The Reinvention Of The ATO

Anyone who has received an email from the ATO recently will see that their new email sign offs proudly state “We’re Reinventing”. At least sometimes they do - I suspect some ATO officers remove this logo in some correspondence.

And therein lies the problem with cultural change in an organization as large and entrenched as the Australian Taxation Office. I think the Commissioner, Mr Chris Jordan, is brave and visionary in trying to reinvent the ATO into an organization that is more approachable and responsive to taxpayers. A significant number of ATO officers, particularly in the Review and Dispute Resolution (‘RDR’) section of the ATO are on board with this new approach.

I shared a panel with two Assistant Commissioners on Friday 28th August 2015 in Brisbane to discuss RDR’s approach to mediation and their own project, in-house facilitation.

In-house facilitation is a form of mediation run by ATO officers who truly do act independently. I think this is a brilliant innovation and at its best, works very well. I have been involved in several facilitations, all with great success.

I am greatly concerned, however, that the good intentions of the Commissioner and those in RDR and the goodwill being developed by this approach is being eroded by some people within the ATO who do not believe in it. One matter in particular suggests to me that some within the ATO are prepared to walk away from a concluded deal from a mediation.

Hopefully these issues can be resolved and I look forward to hearing from the RDR Assistant Commissioners as to how they hope to address this problem in the future.
  

Posted in: Tax & ATO News Australia at 17 September 15

The Simple Solution to Solve the Budget

I have had an epiphany.

I can solve the budget shortfall for the Federal Government by showing the Treasurer how to raise unlimited revenue. My plan is simple. The legislation is already in place and the Courts and the AAT have shown us that it is possible.

We are going to tax dead people.

I am not talking about an estate tax, or death duty. That would be politically unpopular.

No, what I am proposing is that the ATO issue default assessments under s167 of the ITAA 36 to every single person who has died in Australia since 1936. How can the Government do this, you wonder? That’s the beautiful part of my plan – all the ATO has to do is to make a determination under s170 that every deceased tax payer avoided tax due to fraud or evasion. Then the ATO can go as far back as it likes and raise new assessments.

The Courts have said time and again in cases like Rigoli and Futuris that the ATO does not even need to try very hard to come up with a figure. They just need to have a bit of an educated guess and then it’s up to the taxpayer to prove that this figure is wrong.

So each deceased taxpayer can get a tax assessment for, say, $10m. Section 177 means that’s proof they owe the tax. And the proof of tax evasion? Well, the ATO doesn’t need to prove that either. That’s up to the taxpayer too. If a figleaf of justification was required (and it’s not, according to the Courts) the ATO will say what it always does in such cases – any taxpayer who owed such a large amount of money must have known they had more tax to pay. Ergo they deliberately understated their taxable income, ergo tax evasion.

Cheating non-taxpaying bastards. We’d lock them up if they weren’t already dead. On the otherhand, fortunately for the Government, being dead makes it hard for the taxpayer to prove their case. If there is a material witness to a question of fact, Jones v Dunkel says you have to produce them to give that evidence or risk an adverse factual finding. And no-one is more material to a question of tax evasion by a taxpayer than the taxpayer him or herself.

The plan is foolproof. Naturally it’s extremely unlikely any money will be collected from estates that have already been distributed and finalised, but quite alot of people will probably cough up a couple of million each to save the cost and expense of having to fight a losing battle against the ATO, with their unlimited litigation budgets.

This was right in front of our eyes the whole time. The Courts and the AAT have already sanctioned it, as recently as last week. Check out this if you don’t believe me.

Well, that’s that problem solved. I’m off to the middle east next to solve that little pickle by introducing effective Workplace Health and Safety Laws.
  

Posted in: Tax & ATO News Australia at 09 July 15

The GST Issue With Uber

The ATO recently announced their view that popular ride-sharing facility Uber is a taxi service for GST purposes. For those who are unaware, Uber is a platform by which private individuals can register and make their own vehicles available to the public, drive passengers to their desired location for a commercial fare, all via a simple smartphone application. While it has enjoyed phenomenal success and is available in 200 cities across 55 countries, this GST ruling is only the latest development in a long list of regulatory hurdles faced by the company.

Typically, businesses with a GST turnover of less than $75,000 are not required to be registered for GST. However, the exception to this rule is found in s 144-5 of the GST Act, which states that if you provide “taxi services” as part of an enterprise, you are required to be registered for GST, regardless of turnover. The ATO identifies three key points underpinning this approach:

First, it avoids the confusion that would arise if some taxis had to charge GST, and some did not;
Second, to avoid the issue of a passenger using a taxi on a business trip, which is a creditable acquisition for GST purposes, and wanting to claim an input tax credit against the GST included in the fare, but potentially being prevented from doing so; and
Third, the state authorities regulating traditional taxi services adjusted all meters to reflect GST after 1 July 2000. If only some drivers were registered for GST but all drivers collected this higher rate, it would disadvantage drivers who had to be registered under the ordinary $75,000 threshold but provided the same service.
This extends to taxi drivers, chauffeur-driven limousines, hire cars, and, now, Uber drivers. This means charging GST, lodging Business Activity Statements, and claiming Input Tax Credits for transactions entered into while providing “taxi services”.

While the object of the section is arguably to promote uniformity in the industry, the decision that Uber is part of this industry suddenly presents a huge compliance burden that did not previously exist for the company and its drivers. The company has since argued it is being unfairly targeted, and to find out whether this is the case, it is necessary to have regard to what precisely it is that the ATO considers a ‘taxi service’.

Guidance can be drawn from ATO ID 2002/23, which notes the term ‘taxi’ is not defined in the GST Act, and so the term should take on its ordinary meaning. To this end, the ATO referred to the Macquarie Dictionary 1997 definition, being ‘a motor car for public hire, especially one fitted with a taximeter.’ Applying this definition to Uber’s method of operation, it is certainly possible to consider Uber cars as being for public hire, and thus taxis for the purposes of the GST Act, with all the responsibilities that entails. By registering and providing your availability, any member of the public looking for a lift can simply request one through the Uber app on their smartphone, and the driver will meet them for pickup and drop off – ironically not dissimilar to the apps now available to request conventional taxis here on the Gold Coast.

It seems that while Uber has tried to take a revolutionary approach to travel-for-hire by pioneering the ride-sharing industry, for GST purposes, it’s actually nothing new at all - at least in the view of the ATO. With Uber strongly foreshadowing a legal challenge in reply, it will be interesting to see whether the courts share the ATO’s view, or whether they limit the scope of the term ‘taxi’ to the traditional metered model, and the impact that such a decision will have on this section of the transportation industry. 

Posted in: Tax & ATO News Australia at 28 May 15

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

Recent Federal Court Decision on ATO Objection Review Process

Federal Court decides an ATO objection review need not re-consider decisions made by an auditor

Yesterday, Justice Collier in the Qld registry of the Federal Court handed down a decision in Hii v Commissioner of Taxation [2015] FCA 375.

This case adds another chapter in the now considerable body of law on the application of s39B of the Judiciary Act to tax cases, following the High Court’s decision in Commissioner of Taxation v Futuris Corp Ltd (2008) CLR 146. Justice Collier essentially agreed with a line of Federal Court authorities that Futuris limits the grounds for challenging an assessment under s39B to either conscious maladministration (also referred to as bad faith), or assessments that are tentative or provisional.

While the parts of the judgment that relate to s39B are long and largely uncontroversial (if disappointing), the judgment also contains one conclusion that I think will surprise alot of people: when an ATO officer reviews during an objection the decision of an auditor, the ATO officer need not decide the issue again. While an alternative conclusion would not have changed the outcome for the taxpayer in this case because of the conclusion in relation to s39B, this point does raise question marks about the role of an ATO officer when determining objections.

Facts

Very briefly, the facts of this case involve large assessments over a number of tax years against a taxpayer who claimed to be a non-resident. The ATO during an audit concluded the taxpayer was a resident of Australia for a variety of reasons.

Furthermore because the assessments would otherwise have been outside the four year period normally allowed for the ATO to make amendments, the audit officer had to decide that there had been an avoidance of tax due to evasion in order to make the amendments. The auditor did so, and based this decision primarily on the fact that the taxpayer had put as his residential address on his tax return a foreign business address.

The taxpayer objected, including in relation to the evasion decision. An ATO officer then determined the objection, reducing some of the tax payable, but critically on the question of evasion, the ATO objections officer did not form his own conclusion at all. Instead the objections officer simply confirmed that the original auditor had the appropriate level of authority to make that decision, and then adopted the auditor’s decision.

Proceedings before Justice Collier in the Federal Court

The proceedings and arguments were complex and defy quick summary. Much of the case involved a consideration of whether the cases of review under s39B were closed to the two categories mentioned Futuris and referred to above. Once her Honour determined that they were, this essentially determined the outcome of this case in favour of the ATO.

Justice Collier then went on to determine the question of whether the ATO objections officer needed to form his own opinion on the question of evasion and concluded he did not. The relevant passage is at paragraph [108] of the judgment:

In reviewing the amended assessments in light of a taxpayer’s objection in order to determine if it was correct or should be allowed in whole or in part, it is not necessary for the Commissioner to redetermine, ab initio, all issues relevant to that decision. I accept the submission of the Commissioner that, in deciding the correctness of the original decision, it would be contrary to the concept of a “review” if every decision and consideration previously made by the Commissioner in relation to a taxpayer’s assessable income in any particular year was required to be discarded and made afresh. This absurdity is highlighted in the circumstance where an assessment is affirmed by the Commissioner, either wholly or in part. Certainly, the ITAA 36 does not specify that this procedure must be followed.

With the utmost respect, her Honour is completely correct in that the tax legislation is silent on what an ATO objections officer must do when reviewing an objection. This unfortunately creates a great deal of doubt and uncertainty.

Personally, I do not think it is satisfactory for an ATO officer when hearing a taxpayer’s objection to simply adopt the decision of the auditor, without any critical thought or review. What is the purpose of an objection process if the officers deciding the objection can simply rubber stamp the decisions of the auditor? The whole process has the potential then to be a complete waste of time and money. Further, I doubt anyone is arguing that the objection officer (or indeed the AAT on appeal) has to effectively re-audit a taxpayer. The taxpayer would be aggrieved, however, if the ATO objection officer or the AAT did not redetermine issues that were raised in the taxpayer’s objection – such as whether there was tax evasion, as in this case.

The House of Representative report into the ATO’s conduct of taxation disputes which I have previously commented on was scathing about examples where the objection officer simply rubber stamped the auditor’s decision. Recommendations were made about separating the audit function from the objection process, including housing the objection and appeals function in a separate appeals division of the ATO under a new second commissioner.

In order to give proper legislative effect to this functional change, and in light of the decision in Hii it is critical that parliament spell out clearly that the role of an ATO officer when deciding an objection is to redetermine afresh those issues that are raised in the taxpayer’s objection.

  

Posted in: Tax & ATO News Australia at 28 April 15

Corporate tax avoidance – what does Apple’s tax bill have to do with us?

On the face of it, the clever, multi-jurisdictional structures of companies like Apple and Google seem a clear case of corporate tax avoidance, and the Federal Govt in Australia appears justified in trying to stamp it out. Many reports and newspaper articles loudly proclaim that companies like Apple are only paying in the order of $193m tax in Australia on $27b revenue.

But like all things in tax, politics and computer design, nothing is ever as simple as it seems.

Firstly, there are a lot of moving parts in Apple’s international structure, which it must be stressed is completely legal.

Apple and other multinationals have simply done exactly what countries like Ireland and Singapore wants it to do: that is, bring its business to those countries in exchange for low corporate tax rates. It seems more than a little sanctimonious to criticise Apple for doing precisely what a sovereign country has encouraged it to do.

Or should we criticise Ireland for offering lower tax rates to attract the business? That would be odd, seeing as Australia (and most other countries) do a version of the same thing.

If Australia were striving to develop a healthy economy and thriving/robust society after years of internal turmoil and struggle, wouldn’t we as Australians want to try and find ways to attract investment and innovation to our shores?

Secondly, the law of unintended consequences is definitely something to watch. The Government’s own Parliamentary Budget Office has warned that unilateral diverted profits tax (a so called “Google Tax”) could lead to other countries imposing higher taxes on Australian businesses abroad in retribution.

Commentators and politicians tend to constantly overlook a fundamental feature of international taxation – profits are taxed at the source of the good or service, not where it is consumed. To be fair, commentators are not alone in overlooking this – the ATO has forgotten this on occasion as well, as the High Court case of Crown Insurance Limited, which I ran, shows.

The Managing Director of Google Australia, Maile Carnegie, clearly explained the issue by reversing the argument at the Senate Hearings this week:

“If you look at someone like Rio Tinto, they have 35 per cent of their customer base in China, but less than 1 per cent of their tax in China ... Google has a similar structure.”

Thirdly, as the Commissioner of Taxation has recently commented, major multinationals like Google and Apple are in continual dialogue with the ATO about specific items of income and deductions and are almost continually audited. These are frequently questions on which reasonable minds can differ, but the big companies have ample resources to properly argue their case with appropriate evidence, obtained in real time. In the words of Apple’s Tony King, "All our costs of doing business are reported in our books, and we buy products from affiliate companies outside of Australia. Apple has been operating in Australia for more than 30 years, and we now employ over 2,000 people here."

Transfer pricing is a well established mechanism by which multi-national companies are correctly taxed on the profit sources in specific countries. While Australia’s transfer pricing taxation regime is far from perfect, it is at least a well know, internationally accepted model that works.

As any business owner will tell you, one of the main objectives in how they run their business is how to remain competitive in a rapidly changing world, specifically, how to maintain profitability. Is it fair to expect any less from organisations like Google and Apple just because of their sheer size?

Google’s rep Maile Carnegie puts it this way, "I guess my answer to that one is that fundamentally, Google does not structure itself based on tax, it structures itself based on being competitive. We are not opposed to paying tax. What we're opposed to is being uncompetitive. And just like Australia needs to compete with Singapore or Ireland or the US or the UK for various things, we need to compete with the people sitting at this table as well as Tencent in China, as well as Ali Baba, who is now incorporated in the US. So we structure ourself to be competitive.”

Would you expect business owners or managers to respond in any other way?

Let’s take a moment here to consider the possible consequences.

My great concern is that taxes cannot be targeted at specific entities. Taxes that are introduced with the justification of a specific set of circumstances, quite frequently end up targeting taxpayers with completely different profiles.

So if the Treasurer introduces new legislation as a populist measure to counter the tax structuring of Apple and Google, we should all be very concerned to ensure that it does not end up catching ordinary Australian SME companies trading overseas. As we have seen, the consequences of poorly designed and administered tax can be incredibly damaging for individual taxpayers. These consequences should not be risked simply to grab a good headline that will have no other positive effect.

Putting it a little plainly.

Bad laws make bad results for the wrong people. The simple truth is that the more technical and complicated laws that are created, the more lawyers and accountants get paid to find loopholes (which we will, because greater complexity always results in greater loopholes) and you end up with an expensive cumbersome unworkable system that big companies with expansive legal budgets will always successfully exploit. Which of course greatly increases the chances of accidentally catching a little fish – the SME taxpayer – who cannot afford Apple’s lawyers and never thought for one second that the Google Tax would apply to them.


And don’t get me started on the possibility of retaliatory trade practices, identified by the parliamentary budget office, that’s for another article. 

Posted in: Tax & ATO News Australia at 10 April 15

TAXPAYERS STRIKE BACK

Federal Government slams the ATO approach to tax disputes.

The Federal Government yesterday published a bi-partisan report into the ATO’s conduct of tax disputes. I gave evidence to the House of Representatives committee on this issue last year, much of which was extensively quoted in the report. The report is damning of the ATO’s conduct in tax disputes. Unsurprisingly, I whole heartedly agree, and also I agree with the recommendations.

As any of you who have followed my rantings (sorry, my blog) over the years will know I have been banging on about this forever, for those of you who haven’t, strap yourselves in, it’s a pretty wild ride!

Currently Australia has a reverse onus of proof in tax matters. The ATO just has to say “we think you owe $1m in tax” and then the taxpayer has the job to prove that’s wrong. Actually, it’s even harder than that, it’s also the taxpayers’ job to prove what the right income is, not just that the ATO was wrong. So taxpayers are guilty until they prove themselves innocent. Yes, you read that right, we live in a country where you are guilty until proven innocent (at least as far as tax disputes go). Surely I am not alone in feeling incensed by this disregard of one of our most fundamental principles of law.

This has all kind of ramifications, when you consider the cost of litigation to prove yourself in court, which significantly favours the ATO (who have huge litigation budgets, and full time staff to do nothing else, who aren’t likely to be personally ruined by the outcome). But the cost is not just monetary, the time and stress of this process takes its toll too.

In the words of Bert van Manen MP* “The committee received evidence that taxpayers suffer enormous emotional stress. Disputes can contribute to marriages breaking-up,”

Add into this the fact that the ATO can, and does, commence debt recovery proceedings to take people’s property, bankrupt them, stop them travelling overseas and seize their bank accounts as soon as the assessment is raised, and before the matter is proved in court. Many of my clients have had problems with this, which I’ve blogged about over the years.

Worse still are allegations of evasion.

This is all about how long the ATO has to review your assessment. Generally, the ATO has four years (for SME type taxpayers) to amend an assessment – once you are outside that four year period, you are safe. But the ATO has an out – if they say that there has been fraud or evasion (ie deliberate action by the taxpayer to understate their taxable income), then the ATO can amend at any time going back well beyond four years.

The problem with this is that the onus is still on the taxpayer to prove their position – now how do you prove that you did not deliberately understate your tax? And bear in mind that you only have to keep records for five years, what happens when the ATO wants to go back ten years? How do you prove your position then?

Example;

The ATO says,“you received this $100k into your bank account in 2001 we’re going to call that your income and because you deliberately failed to disclose it in your tax return, we will assess you and now you owe us (with plus penalties and interest), $300k””

You reply, “But it was given to me by my grandmother just before she died”

They say, “Prove it”.

If you can’t prove it – because there’s no paperwork – then you are in serious trouble.

The issue as I put it to the Committee is that,

“there are still too many ATO officers whom I would describe as zealots and who seem to approach their duties as auditors or objection officers or debt collectors as though all self-employed people or business owners are tax cheats and should not be believed.
…In too many cases that I see, an ATO auditor will form a very early conclusion about the bona fides of a taxpayer. After that view is formed, no amount of evidence or legal submissions can convince some auditors that amended assessments should not issue to increase the amount of tax payable.”

Not surprisingly some of the claims made by others during the inquiry were that ATO auditors exhibited ‘digging-in’ or intransigence, becoming emotionally invested, not being prepared to accept that a taxpayer could be right on a matter of fact and bringing up trivial issues late in an audit after the taxpayer rebuts the initial ATO position.

The issue that doesn’t get spoken about enough is the toll this takes on a person’s mental and emotional health, there was evidence given during the inquiry that was quite frankly heart-breaking.

“Mr Pilgrim, a retired builder, stated that the dispute had a substantial negative effect on both his marriage and his business:
We went from 2007 through to 2010. The whole of our life was put on hold. My business suffered because I did not know from one day to the next whether I was going to be in business–I didn’t know if the ATO was going to send me bankrupt. It cost me my business and also my marriage, that part of it… I spent months backwards and forwards with the ATO, disputing the facts with my figures. That is why they reduced it back to that amount of money.

Ms Judy Sullivan from PricewaterhouseCoopers (PwC) advised that taxpayers have committed suicide at the conclusion of a tax dispute:

I am sure you will be hearing from a number of taxpayers about the emotional toll of these sorts of things. I have had clients in the past who have committed suicide after coming out the other end of an audit for a very serious allegation that was in fact settled. There is stress on families because of the length of time and things like that. You see a lot of marriage break-ups and emotional stress from these sorts of allegations.”

In response to this evidence, Commissioner Chris Jordan stated, ‘We do know that delays in dispute resolution have real, physical and sometimes paralysing impacts for business and individuals.’ And Second Commissioner Andrew Mills had this to say, ‘For those who have been adversely affected by our poor handling of their disputes, I would like to extend my sincere apologies.

It’s a great start, and I do appreciate the recent improvement in the ATO’s handling of tax disputes but it has to translate to all ATO employees. There are still far too many recalcitrants from the old school of zealotry, and until these zealots are forced to embrace the new ATO approach, lives will still be destroyed.

Legislative change is needed. With the release of the Tax Disputes Report, finally, the government recognises this need. Amongst its 20 recommendations, one of the proposed changes is a recommendation to reverse the burden of proof position, so the responsibility is on the ATO, forcing it to prove that you committed tax evasion – that is, that you deliberately did something to reduce your income.

“Recommendation 7
The Committee recommends that the Government introduce legislation to place the burden of proof on the Australian Taxation Office in relation to allegations of fraud and evasion after a certain period has elapsed. The change should be harmonised with the record keeping requirements. These periods could be extended, subject to concerns of regulatory costs on business and individuals.”
This is a massive step in the right direction as it will make the ATO actually look for real evidence of wrong-doing, rather than just make the assessment and leave it to the taxpayer to prove.

In the report you will be able to read the evidence I gave during the inquiry, stating my belief that “under current laws and systems, it is too easy for the ATO’s powers to be misapplied”. This is obviously something that I feel very strongly about, and I will be pursuing this over the coming months, and I hope you will bear with me as I rant about it in future articles.

I sincerely hope that these recommendations are quickly adopted by parliament and legislation is quickly introduced and passed.


*Committee Chair of The House of Representatives Standing Committee on Tax and Revenue

Posted in: Tax & ATO News Australia at 27 March 15

ATO Settlements, Part of the restructure?

 As mentioned in a previous article the Commissioner of Taxation announced major changes to the ATO which include a new focus on early resolution of disputes through settlement as an alternative to stressful litigation.

I have recently been involved in a number of significant settlements with the ATO – all of which achieved great outcomes for my clients and reduced their tax bills enormously. Further, the outcomes have avoided the need for us to take the ATO to court which would have been stressful and time consuming for my clients, even if we won.

I enjoy settling my clients’ tax disputes with the ATO without litigation, as it provides far greater certainty, less cost and is an overall better process.

But one issue that definitely needs to be addressed as part of this new process is the interaction between debt recovery and taxation disputes.

Most people do not realize that the ATO treats the resolution of taxation disputes in a completely different department from debt collection and that the processes are entirely unrelated.

The ATO has not yet worked out that to a taxpayer, knowing whether they can afford the repayment of tax debts is of far more importance to the total amount of the debt. Taxpayers, or at least those who are not fabulously wealthy, need time to pay large debts, and without the imposition of high interest rates.

Taxpayers will have no choice but to fight the assessment of unfair tax if the immediate payment of even a reduced tax bill will cripple them financially anyway.

It is critical to the success of the settlement process that the ATO negotiator be authorized to settle the payment terms of any compromise tax position. This is just common sense and hopefully the ATO will see it. 

Posted in: Tax & ATO News Australia at 24 March 15

Reinventing the ATO

The Commissioner of Taxation, Mr Chris Jordan, announced today at the Tax Institute National Convention, that he wishes to reinvent the ATO. Before you roll your eyes and pass this off as a publicity gimmick, take a look at what he has said.

In his words:

"We’re looking to reinvent the ATO, to transform how we go about our cure business, and make the ATO a contemporary and service-oriented organization – to be a leading agency, relevant and response to the expectations of the community and the government.”

Although this sounds like fairly bland, bureaucrat-ese, I have been given the opportunity of some insider perspective through my interactions with the ATO at recent round-table consultations, which has led me to believe that there is a genuine attempt to change the culture, at least at the higher levels of the ATO. Whether (and when) this filters to the level of ATO officers that most commonly deals with my SME and affluent family group clients remains to be seen.

 

The Commissioner, however, must be applauded for these mooted changes, and if it comes off, text books about organizational cultural change will be written on this for years to come.

 

"Everybody has accepted by now that change is unavoidable. But that still implies that change is like death and taxes — it should be postponed as long as possible and no change would be vastly preferable. But in a period of upheaval, such as the one we are living in, change is the norm."
— Peter Drucker, Management Challenges for the 21st Century 

 

In the meantime, however, the most we can safely say is that there has at least been a recognition that the culture at the moment is perceived as:

• Hierarchical
• Siloed
• Bureaucratic
• Risk adverse

Sound familiar? Anyone who has had any interaction with the ATO over the last fifteen years will be nodding in agreement. That the ATO has recognized this is, by itself, a fantastic step in the right direction.

One practical issue that the ATO seems to be firmly embracing is the need for a better settlement process. In the past the ATO has allowed positions to become entrenched resulting in costly and stressful litigation. As our experience shows, the ATO has often got it wrong in the past and we have taken them to court on behalf of our clients on many occasions to prove it.

 

While beating the ATO in court is satisfying at one level, I personally prefer getting practical and worthwhile outcomes for my clients through early settlement. Fortunately the ATO now appears to be recognizing the value in this and has embraced early settlement – at least in principle. I have been involved in many recent settlements with the ATO (one recent one went until 11.00pm at night) and have achieved fantastic results for my clients, without the need to go to Court. Perhaps the ATO is capable of the change it so obviously needs within its cultural mindset, only time will tell but I certainly hope this proposed change in the ATO is genuine and that we can look forward to a lot more early settlements.
 

Posted in: Tax & ATO News Australia at 20 March 15

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Tax & ATO News Australia

Author: David Hughes

Last 12 months

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