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


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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3 years ago

The ATO are not the only regulator that should follow MLO guidelines. Despite stating they are not designed to prevent the government body from “acting firmly and properly to protect their interests,” taking “all legitimate steps” to pursue or defend claims, or even from “pursuing litigation in order to clarify a significant point of law even if the other party wishes to settle the dispute”, I am aware of 2 cases where the SME was forced to defend itself in Court when other businesses, often far more non-compliant more financially better resourced than these 2, were offered alternate action at far less cost. In both cases, the regulator got nothing at all despite huge costs being awarded because the businesses were declared bankrupt and had no assets. From a taxpayer perspective alone, the regulator’s actions didn’t make sense and they certainly weren’t transparent or fair in comparison.
Sooner they bring this in the better.

3 years ago

The entire government and tax department need to be completely ripped apart and rebuilt from scratch. The ATO launched an attack on the unemployed 2 years ago, creating thousands of fake debts, and even though these were proven to be lies and fake debts, the ato said it is irrelevant whether or not this money is owed either prove you don’t owe the money or pay up. ATO documents were altered to try and confuse and catch people out. The ATO took my files and altered them to make it look like I had worked for 3 different employers in a 12 month period when it was just 1 employer and all earnings were declared correctly it was the ato who had altered files. They then added an extra $300 in earnings from an unknown unidentified employer to my taxable income. Both centrelink and the ato told me they dont have to prove who this employer is or that they exist, it is up to me to prove this unknown employer does not exist and I didn’t earn this money whilst on centrelink payments, I was also told that if I continued to challenge the ATO I could end up owing more money. Just a subtle threat to shut up and pay up. A News report showed politicians going around schools selecting 15 year old students that they will train to be our next generation of political representatives. So any one who believes they are voting for a fresh face and outlook in politics is completely wrong. As our politicians have pre selected and groomed our future politician’s 15 years before we even know who they are. Next election I’m voting for pluck a duck more mature and better behaved than the politician’s we have now. When pre school students can’t believe how badly our government behaves then we have huge problem.

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