ATO unfairness reduces productivity

There are warning the ATO’s top-500 private company interrogation has been extended to the next 5000 companies.

Australia, via its central bank, is embarking on a clear strategy to slash inflation by creating a substantial downturn that boosts unemployment and thereby, curbs wages and prices.

It is a miserable and dangerous process, which is one reason why the sharemarket has fallen so sharply.

There are two other ways of reducing inflation.

The first is to slash government expenditure, but that’s hard after a 2022 big-spending election campaign.

A second way is to increase productivity and the most effective way to do that to instil a sense of entrepreneurship in major parts within the small business and family enterprise community.

Sadly the reverse is happening in Australia thanks to the latest actions by the Australian Taxation Office.

The latest ATO attack on family business is to try and collect $34bn the tax collector says is owing.

I am sure part of that $34bn will be a genuine tax debt and if we had a fair appeal and tax collection system where there was community confidence, that money would now be paid.

Another slab of that $34bn will be fiction and includes exorbitant penalties and interest.

Much of the $34bn is owed by the building industry, which is now on its knees.

But it is another ATO attack that represents a clear drive to reduce family business productivity.

Regular readers will remember that the ATO offered the top 500 Australian private companies immunity from audit for three years if they engaged in a detailed interrogation of their business.

The ATO is trying to claw back $34bn in tax debts

It turned out to be a hoax because after one set of questions that were mostly answered, more and more keep coming, and freedom from audit required enterprises to inform the ATO of any substantial development in their business – an ongoing part of all family enterprises.

The Australian community can be grateful to former ANZ Bank director John Dahlsen, who currently owns one of the largest private building service groups, for alerting the community to what was really happening and the costs to family enterprise.

Dahlsen warns that the top 500 private company interrogation has been extended to the next 5000 companies.

Dahlsen now details what is happening and his ATO lessons this way:

“The ATO has more power than any other statutory agency with tax laws that are extremely complex involving thousands of pages of laws, regulations and information bulletins. This complexity imposes significant risk and adverse consequences to the taxpayer and has given rise to a huge industry of professionals who have made careers and earned millions.

“There is a huge gap between the large well-resourced taxpayer who often has a tax department, quite removed from the executive team driving the business. With the small taxpayers closer to day-to-day activities, tax and its impact will be like any other cost and part of its everyday activities.

“But to the ATO, the law is the law. No matter what your size or how small or large the transactions is.

“When the ATO wants the information, the ATO requires it by a specific date. When you want information or help from the ATO, the ATO will not commit on the time. This is a great demonstration of the imbalance of power.

File photo of former ANZ director and now business owner John Dahlsen.

“If you believe the ATO is wrong in interpreting the law, you have to provide evidence and information, often to some cost, as to why the ATO are wrong. The ATO will not give you adequate opinion or reasons as to why they are right and you are wrong.

“The ATO expect you to provide a great deal of information about the sector so they can understand not only your business model, but how other models in the sector work. So there is a massive amount of knowledge developed by the ATO indirectly about you and the sensitive tax issues in your sector. Should the ATO return the favour and help you with the wider information and where the tax risk lies?

“The ATO has many areas of specialisation, but the specialists rarely become involved with the taxpayer leaving it to the case managers and juniors to be the conduit of communications.

The inability to talk to the experts and the decision makers puts the taxpayers at a disadvantage. Some tax payers incur a huge cost because of the inexperience of less qualified tax staff.

“The ATO do not want sessions with the taxpayers recorded, but at most meetings, there is a good guy, bad guy and someone who writes up the meeting, capturing all your comments. Those notes are not available to you.

“The process can be enormously costly, particularly for a small taxpayer who will have to spend a higher percentage of his revenue, profit or assets than the large taxpayer.

“The government has a terrible conflict – it needs more tax revenue, but it has to be very careful that it does not unduly harm and depress through the ATO the very entities that are delivering tax revenue.”