Inspector-General and tax ombudsman Karen Payne blows whistle on ATO unfairness

Inspector-General and Taxation Ombudsman Karen Payne. Picture: Stuart McEvoy

The Inspector-General and Taxation Ombudsman, Karen Payne, has once again highlighted the basic unfairness of the way the ­nation and its tax office collect revenue from citizens. While the Australian Taxation Office has agreed to rectify some of the latest set of bad practice revelations, it is too little too late.

When I started writing about bad ATO practices some five years ago I was virtually alone. Now there is an unfairness avalanche. It is time for the Coalition government to legislate for a proper charter of taxpayer rights and an independent, low-cost appeal ­system.

And the time clock is ticking. Either the current Morrison government or the party that wins the next election must address the underlying flaws in the system or the eroding confidence of people in the fairness of the nation’s taxation methods will accelerate and endanger revenues.

I will select just some of the fact revelations and conclusions that arise from the Inspector-General’s latest report.

● Only legislation works: The ATO has a charter of responsibilities that is supposed to be a social code of conduct. Because the charter is not legislated, the ATO is ­ignoring some of the key provisions, particularly around ­appeals. The Inspector-General does not specifically recommend a legislated charter of taxpayer rights, but her report underlines that the need for such a charter is now urgent

● Missing education: In the non-legislated charter, the ATO is required to explain to taxpayers their appeal rights. But the Inspector-General discovered that the annual mandatory package in the ATO training courses does not provide sufficient training to equip ATO officers with the relevant information and understanding necessary to explain either taxpayer rights under the charter or the avenues that taxpayers have to question or dispute an ATO decision.

There is also a “non-mandatory” staff course on appeals and rights, but in the three years to June 30 this year only 18 people bothered to take the required education – a response of about 1 per cent.

● Charter ignored: According to an Inspector-General-commissioned survey, less than 16 per cent of small business taxpayers were told of their internal ATO appeal/review rights. It gets worse. Less than 4 per cent of small business taxpayers were alerted to their rights to appeal to either the small business tribunal or a judicial review. Not surprisingly only 2.5 per cent of surveyed small business taxpayers were told of the availability of a low-cost appeal to the Inspector General of Taxation Ombudsman. Although the Inspector-General has no power to adjudicate, one might conclude that the ATO officials fear that taxpayers may get a fair hearing and want to keep the Inspector-General well away.

● Total unfairness: The Inspector-General does not say this, but many in the ATO could argue that there is no point in telling most taxpayers their appeal rights because currently those rights are worth little more than a row of beans because there is actually no proper low-cost appeal systems.

The internal ATR appeal structures only work if you are lucky enough to get a good person, but are quickly turned into kangaroo courts when mates of the assessor hear the appeals. Appeals to the Administrative Appeals Tribunal plus the Federal and High Courts are extremely costly.

The Inspector-General recommends that the current social code charter be amended, but without legislation there is every reason to believe that, after short periods of good behaviour, it will continue to be ignored by some of the fiefdoms in the ATO.

● Why ATO people hate appeals: The current charter does not require the ATO to show how it calculated a particular tax debt. As the Inspector-General highlights, this should part of a model tax system. All too often the only way a taxpayer can be told how the tax bill was calculated is to undertake one of the appeal processes, as set out above. The Inspector-General does not speculate on why the ATO does not set out its reasons each time it makes tax assessments. My guess is that it is often part of a bullying process. But on many occasions fair people in the ATO – and they exist – actually made the right ­calculations and unnecessary ­appeals must undertaken to gain the reasons.

The Inspector-General wants reasons for individual tax decisions to be given as a matter of right. While that would be fair, it would mean that many tax assessors would actually have to do the work rather than gaining revenue by bullying taxpayers.

● The Inspector-General points out that the statutes require that the ATO be a model litigant. Anyone who has seen the ATO operating in the courts knows that statue is often ignored. The Inspector-General does not comment on the ATO behaviour in the courts, but she does say that stating reasons for decisions would seem to be part of being a model litigant.

I am optimistic that the 46th parliament will address the tax mess, but the ATO will fight hard to get tax fairness issues deferred to the 47th parliament in the hope that the issues will go away. But the movement for fairness is too widespread.