Tax

ATO accused of being a “dictator” and “cooking” SMEs as government considers rules to enforce fair conduct

Dominic Powell /

The Australian Taxation Office (ATO) has been accused of being a “dictator” and “a pack of bullies” in a Senate Committee hearing yesterday debating proposed legislation to allow the Commonwealth Ombudsman to enforce model litigant obligations (MLOs) on government agencies.

These obligations currently exist as guidelines for how government bodies should act during litigation, including stipulations to act honestly, consistently, and fairly, deal with claims promptly, and to not take advantage of claimants who have fewer resources than the body itself.

Currently, individuals do not have any legal recourse if they believe these obligations to have been breached. The Bill, introduced by Liberal Democrats Senator David Leyonhjelm, would allow the Commonwealth Ombudsman to rule on and enforce the obligations, and permit courts to enforce sanctions.

In a public hearing yesterday, director of Self-Employed Australia Ken Phillips told senators that the tax commissioner “has the power of a dictator” and likened the actions of the ATO to the actions of banks and churches throughout the royal commissions – “deny, deny, deny”.

Speaking to SmartCompany, Phillips says he and his organisation support the Bill but note it will have minimal impact on small business owners as he believes it largely benefits the big end of town. He’s hoping it will have a “cascading” effect on the actions of the ATO when dealing with small business owners.

“What we know about small businesses being attacked by the tax office is that normal rules of justice don’t apply. When the tax office says you owe them $200,000, it’s not an allegation or claim as you’d normally expect under the law, that statement becomes legal fact,” Phillips alleges.

“You have to unprove you owe the money, and we’ve seen the taxation office doesn’t do much in assisting the unproving of it.”

Phillips told the inquiry that the ATO “cooks” small business owners slowly, accusing the government body of knowing that SME owners typically can’t afford drawn-out cases, extending them before offering business owners a “deal”, which they inevitably accept.

“SME owners cave in, not because of the rights or wrongs of the case, but because the ATO is a pack of bullies who can get away with it, and by doing that they’re breaking model litigant principles,” he says.

“Judge, jury, and financial hangman all in one”

The proposed Bill would only affect cases that proceed to federal court, and Phillips would like to see the obligations extended to the Administrative Appeals Tribunal (AAT), which is commonly viewed as the ‘cheap’ way for SME owners to dispute cases. However, in reality, says Phillips, the costs of appealing a case through the AAT can often be upwards of $40,000.

“The tribunal is supposed to be a quick resolution process, but if you’re in a situation where the ATO says you owe us $150,000, and you start talking to lawyers, you’ve gone through $10–20,000 in legal bills and you’re still not anywhere near getting into the AAT,” he says.

“Whether or not you really owe the money becomes irrelevant. We’ve been with plenty of people who have owed money, but in some cases, SME owners haven’t owed a brass razoo.”

Though he supports the bill “very strongly”, Phillips notes that in isolation, he doesn’t believe it’s enough. As part of a “much broader agenda”, Self-Employed Australia would like to see the ATO broken up into two different bodies: a collection agency, and a department of prosecution.

“Right now the ATO is judge, jury, and financial hangman all in one, the principles of good policing must apply,” he says.

“There needs to be a completely separate department responsible for the prosecution of tax cases. The ATO must prepare its case and take it to the tax department of prosecution, which has its own statutory obligations and can make sure the jobs being done properly.”

Phillips is also calling for a small business tax tribunal, modelled on the immigration tribunal, with the goal of significantly reducing the cost of SME appeals external to the ATO.

ATO says no abuse of small business owners

In its submission and in the inquiry, the ATO said it did not support the Bill in its current form, as it may lead to delays in litigation; that the issues proposed to be solved by the Bill can already be solved through the “inherent powers of the courts”; and that the ATO already takes its obligations “very seriously”.

The ATO highlighted that conducting itself as a model litigant was already a requirement for the agency, and incidences of obligation breaches were “very small”.

“The ATO takes compliance with the MLO’s very seriously, always endeavours to uphold them, and thoroughly investigates alleged breaches, and makes reports the Office of Legal Services Directions as required,” it said.

“We would like to reiterate that no review, scrutineer or credible source has ever found a pattern of abuse towards small business owners by the ATO.”

Furthermore, the ATO said it rejects the “adverse comments and allegations” made by Self-Employed Australia in its submission.

NOW READ: An “important step”: ATO moves to extend independent reviews to small businesses in tax disputes

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Dominic Powell

Dominic is the features and profiles editor at SmartCompany.

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