The clock struck midnight on Friday, December 4. No High Court appeal had been announced in the infamous “gold case” but in fact a late appeal had been lodged and a new chapter is now about to open.
Stunningly, the appeal was not about the detailed ATO refining case that was part of Australia’s greatest cover-up. Rather the appeal is on the grounds that the full Federal Court was wrong and the Administrative Appeals Tribunal was right in saying that courts can decide motivation of taxpayers without them being interviewed on the subject. The Federal Court said this was “procedurally unfair”. The ATO is appealing that conclusion.
If the ATO wins it will then be able to use its section 165 overriding power to beat the refiners but it will also mean taxpayers can be declared guilty without being questioned by the courts.
We are living in a world where scandals seem to be occurring on a regular basis, but in terms of finance and business the gold case ranks as one of the worst.
The first part represents one of our biggest cover-ups.
The “gold case” has its origins in 2000 when we introduced GST using the British system of taxing refined gold. But within a year or so crooks started to sell gold that required refining to reach investment standard at the normal gold price plus GST. They then disappeared, pocketing the GST they should have returned to the government.
Apart from Australia, every country with a GST followed London and rectified the gap. Incredibly, for another 14 years, we were an ever-increasing picnic ground for crooks.
The tax office, having not initially followed other countries, appeared frightened to admit error. It took until 2016 and my five commentaries before the ATO plugged the gap. In the meantime, billions of GST revenue were lost and its loss was covered up.
The most obvious action for the ATO was to join other Australian regulators and the federal police and follow the money trail to discover the crooks. The failure of the ATO to follow the money trail is a great unsolved mystery.
Instead, the ATO decided it was the gold refiners who were the criminals. It is always possible one or two were in league with the crooks but, as came out in later court hearings, the vast majority were innocent.
The ATO took actions that it must have known would wipe out most companies in the gold refining industry. If the ATO believed the refiners were the criminals then under our justice system the gold refiners should have been charged and declared guilty or innocent in the courts. Instead, the ATO decided they should be bankrupted.
To execute the bankruptcy task the ATO devised a new way of operating a gold refinery and declared that what the Australian refiners — plus all refiners around the world — were doing was not “refining” under the Australian Act.
It was, of course, a complete nonsense but it took the full Federal Court to confirm that. Once the gold refiners under the “ATO rules” were not refining gold then they became subject to horrendous tax bills, including interest and penalties. And the GST that they had paid the crooks and others couldn’t be claimed back. With one exception, every privately-owned gold refiner was put out of business.
Until the Federal Court judgment that technique could theoretically have been used by the ATO to destroy other industries. Indeed, it was used to decimate parts of Australian research.
Sadly, for the ATO , the families behind the refiner that survived, plus other backers, brought the ATO to justice via the Federal Court. It will be a costly exercise for taxpayers but overall it was a monumental win for the nation.
Apart from the ATO, there are other areas in the community that must share the blame for the “gold case” scandal.
Over the past 14 years we have had a succession of ministers in charge of the ATO from both parties. None of them picked up the “gold case” GST issues. There were countless parliamentary committees quizzing ATO officials. None of them got to grips with gold.
Parliamentary committees, when dealing with groups like the ATO, need to interrogate officials for longer periods and have proper advice.
Then there is the ATO appeal system, which completely failed until we got to the Federal Court. The ATO doggedly spent $40m defending what turned out to be the indefensible.
Part of the appeal system is a body called the Administrative Appeals Tribunal (AAT), which after 15 months of deliberation upheld the ATO submissions only to see them decimated by the Federal Court, which also criticised the AAT conduct of the case. The AAT operation covers too many varied areas.
While I am sure this did not affect the AAT’s “gold case” conclusions, the tribunal actually promised it would make a judgment on the “gold case” in February/March 2019 because one of the “judge’s” term of office (they are not called judges but act like them) was set to expire. In fact, that “judge” had his term not only renewed but was promoted. The judgment was not handed down until December. The tribunal needs to make sure that apparent interest conflicts like this do not occur again.
As readers will know I have been campaigning endlessly for a proper taxation appeal system. In the light of the “gold case” disaster, I plead with the ministers in the Morrison government to embrace the full US appeal system — it works and it will boost revenue.
And every single ATO senior executive needs to read the Federal Court decision and ask themselves how could that have happened in 21st century Australia?
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