New ATO danger for family businesses: Robert Gottliebsen

Under fire companies are facing an unprecedented attack by the ATO. Picture: iStock

American companies that depend on consumer discretionary spending are being hit by higher interest rates and are now seeing their revenue impacted. The fear of further blows is hitting selected American shares.

Australia faces the same danger, but our danger is compounded by an unprecedented attack by the Australian Taxation Office on large areas of family businesses.

The ATO claims that family businesses owe it some $34bn. I have no doubt that a portion of this money is a genuine tax liability where the family has behaved badly. I have no sympathy for those families.

But another significant portion will be as a result of bad behaviour by parts of the ATO which issue dubious tax assessments without providing reasons for those assessments and then add interest and penalties.

The situation was compounded by a declared truce in the ATO attack on family businesses during Covid-19. Now the gloves are off. We are discovering that many of the controversial taxation assessments involved the building industry and the so-called “profits” that the ATO calculated during the building boom.

If those profits ever existed, they have been decimated by subsequent losses. In many cases, the ATO is now trying to collect tax (plus penalties and interest) on what turned out to be non-existent profits at a time when many businesses are struggling to survive.

A vast rump of those building and property companies that the ATO is trying to extract money from will simply go to the wall if the ATO continues to machine gun them, so further damaging the nation’s building sector.

In these circumstances, one of the most important bodies in the land is the office of the combined Inspector General of Taxation and Taxation Ombudsman.

The nation should be alarmed by the stories currently floating around Canberra that the operations of the Inspector General of Taxation /taxation ombudsman are going to be disembowelled via a restructure that would involve Treasury control.

Large corporations can afford top accounting and tax advice, which insulates them from unfair ATO practices. And they can afford to go to the courts for adjudication.

Most family businesses can’t afford either expensive legal action or the top-tier accounting firms who know their way around the detail of the tax act.

Suburban tax accountants that handle the affairs of most medium and smaller family businesses can process normal tax situations, but if the ATO decides to hit their client with unfair tactics, then the accountants struggle to provide good advice because of the intricacies of the tax act.

Outside the top-tier accounting firms, no one knows their way around the complexities of the tax act, and it’s difficult to navigate the appeal system better than the Tax Ombudsman/Inspector General, Karen Payne and her staff.

The Tax Ombudsman/Inspector General is not empowered to be a fully-fledged appeal body, but they can point the suburban accountant in the right direction.

Moreover, if the suburban accountant’s client is shown to be a crook and engaged in bad practices, the tax ombudsman has the experience to raise the alert.

Accordingly, in the Australian taxation system that is deeply flawed, the Ombudsman has a vital role to play in taxation fairness.

Part of that role is to investigate specific actions of the ATO. Much of our knowledge of the current unfairness in parts of the ATO system comes as a result of these investigations.

That’s why there is a deep and entrenched dislike of the office of the Inspector General and Taxation Ombudsman in parts of the ATO, and they want the office “neutralised” so that they can pursue their agendas without interruption.

The Albanese government triggered a major fall in family business confidence as a result of its industrial relations legislation but, in fact, the Coalition government was not much better at family business issues.

In particular, the Coalition government turned a blind eye to the unfair tax collection practices administered by parts of the ATO. The Coalition in its final months woke up to its mistakes, but it was too late. Now with the ALP in power and trying to tackle a major government deficit, the ATO’s desire to attack family business is gaining traction.

But there are significant people in the ALP that understand the importance of family bushiness to the nation.

Treasurer Jim Chalmers has fostered the belief that the Albanese government is not as anti-family business as the new labour laws indicate.

And Andrew Leigh became a family business hero when he honoured the ALP promise to introduce unfair contracts legislation to protect families after the Coalition had been nobbled by large corporates.

That unfair contract's legislation will greatly enhance the ability of large banks to lend to family businesses on a cash flow basis rather than securing the family home. These new lending practices will be important in enabling family businesses to survive any downturn.

As a nation, we have to hope that either the better people in the ALP government realise that it is vitally important for the nation that the current pressure to disembowel the family business ombudsman/inspector general is quietly cast aside.