The Administrative Appeals Tribunal is entrusted with the task of reviewing the decisions of the Australian Taxation Office, making it one of the most important bodies in the land for business confidence.
The “gold case” which followed the decimation of the gold refining industry by the ATO was arguably the biggest and most important the tribunal has ever heard.
It spent a mammoth 15 months carefully deliberating on the outcome and found in favour of the ATO on almost all counts.
When the case was appealed to the full Federal Court, not only did three of Australia’s best tax judges declare that the tribunal had got it completely wrong on almost every point, but they made one of the most serious accusations possible against an appeal body, that it did not conduct a fair trial.
I emphasise the community understands the words “fair trial” are my words and were not actually used by the Federal Court. Instead they declared: “The Tribunal denied ACN154 (the former gold refiner) procedural fairness and that the denial was material.”
The combination of mistakes on every front and denying “procedural fairness” in material matters illustrates that the tax appeal system is in chaos.
While the newly-established small business appeals body appears to be working, there can be no business confidence in the fairness of the system in any case outside the small business tribunal. The only way to be sure of a fair trial is to go to the Federal Court - a very expensive process.
The “gold case” was one of the most expensive defeats the Australian Taxation Office has ever suffered in the courts. The methods that the ATO used to ruthlessly destroy most of Australia’s gold refining industry and its magnificent skills base were declared to be legally invalid. That means the entire industry will seek restitution of the money that was lost, plus heavy damages claims. How many billions that will be claimed is not yet known. And the ATO also allowed an obvious GST loophole to exist for almost 15 years (until I wrote five commentaries) and billions were robbed from the states’ revenue. They have a very good case to claim it back.
Treasury and Treasurer Josh Frydenberg will need to adjust forward estimates by billions to account for this costly mistake by the ATO.
There may still be an appeal to the High Court but the Federal Court judgment was very thorough.
Higher courts regularly overturn decisions of lower courts so the ATO defeat in the Federal Court did not cause a surprise. But the accusation of “procedural unfairness” in such a huge case was a surprise and stunned the legal fraternity.
A director of the company that was making the appeal (ACN 154), Phillip Cochineas, was in the tribunal witness box for some five days and the AAT declared that he gave “false and misleading evidence”. That conclusion played the big role in the determination of the AAT decision in favour of the Australian Taxation Office.
But, according to the Federal Court judgment, that tribunal conclusion on the credibility of Cochineas revolved around two emails which were internal to another company. Those emails reference to “GST loopholes” were in the words of the Federal Court “unexplained and ambiguous”. Cochineas was not a party to the emails and was not cross-examined on them. There were several other documents among the 60,000 pages of documents submitted to the tribunal that gave the AAT concern. But again Cochineas was not cross-examined on them. Remember these are criticisms of the AAT made by the full Federal Court, not a commentator.
The AAT is an integral part of the overall taxation appeal system and it is supposed to conduct reviews of the tax office decisions. Those reviews need to be speedy - not 15 months - because under the current system when a tax assessment is made it is an immediate liability to the enterprise and can immediately send the business into bankruptcy.
Under the current system the first appeal avenue is internal within the ATO. Sadly, as we saw in the gold case, the ATO internal appeal body was headed by person who was an integral part of preparing the later declared invalid case against the refiners. No surprise that the ATO “kangaroo court” found in favour of the ATO.
This does not always happen so the internal appeal process is a lottery. Then at the next level, the AAT, there was an unfair trial. Nothing could underline more graphically the desperate need for a proper and independent taxation appeal system that everybody has confidence in.
Appeals need to be swift and, of course, the ability of a trumped-up taxation assessment to become an immediate liability to a bankrupt company it is about as unfair as you could ever get.
There have been a series of other cases where the Federal Court has heavily criticised AAT conclusions. Part of the problem of the AAT is that back around 2015 the Abbott government brought together a series of appeal bodies, including migration, into the AAT. It may be too big.
There is controversy over appointees, including the role of the Australian Taxation Office in government appointments. But in the “gold case” very senior and experienced people were involved. It’s the appeal system that is broken.
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