$160 million Cranston tax affair highlights deep weaknesses in tax system

The $160m Cranston tax affair proves Parliament must act to curb a toxic situation for the small business community.

ATO deputy commissioner Michael Cranston will have his guilt or innocence determined by the Australian court system. Photo: AAP

The $160 million Cranston tax affair and its associated allegations against a deputy taxation commissioner will bring to a head the deep problems that exist in the culture of parts of the Australian Taxation Office (ATO).

And hopefully it will convince Parliament that action is needed because the current situation is toxic for the small business community.

But as well as showing the tax system’s deep weaknesses, on the other side, the Cranston affair also underlines the strong and independent culture in the investigation branch of the Australian Taxation Office which has been fostered by tax commissioner Chris Jordan.

In any organisation when the evidence swings to one of your own, the independence of the investigators will be tested. In this case they did their job. Full marks to Jordan and his people.

But because it’s a criminal issue ATO deputy commissioner Michael Cranston will now have his guilt or innocence determined by the Australian court system, which starts with a presumption of innocence.

If theoretically Michael Cranston was a small business and there was alleged non-criminal tax fraud the matter could be taken to the courts.

But unlike large companies the small enterprise usually can’t afford courtroom justice. Instead under the current system the ATO mates of the investigators judge them. The sentencer is also normally an ATO employee (another “mate”) and, while the appeal system does have outsiders involved, it is dominated by more tax employees/mates. Obviously sometimes it works but the whole process is totally power-corrupted and taxpayers can have no confidence that fair outcomes will result. We have seen fictitious unsigned legal reports used to try and bankrupt honest people which thankfully was reversed by Chris Jordan when I revealed the facts.

Then there was a tax officer who wrote a dubious report on the gold industry only to be appointed the chair of the review body to look at the situation. No points for determining the outcome.

Again Jordan had to intervene to change the bad regulations, which created the fraud. They should have been changed 13 years earlier. These are the situations I have highlighted. They are the smallest tip of the iceberg because the system is broken and there is no justice available for small enterprises. It’s the unfair overdraft contracts situation with banks being repeated in tax.

More controversially, I would argue that the culture created by this power corruption in the tax office created the environment that led to the allegations against deputy commissioner Michael Cranston.

Part of the $160 million fraud are the activities of the Plutus Payroll syndicate which enticed more than 6000 contractors into their web and paid some $400m in wages each year.

It is possible that the ATO will sue these contractors for the tax that was paid to parts of the Plutus Payroll syndicate but not passed onto the ATO.

Given the allegations against the deputy tax commissioner it would be a total scandal if those 6000 contractors were judged and sentenced to possible bankruptcy by ATO officials without appeal.

What should happen is that the Parliament gives the Inspector General of Taxation the power to be the final appeal body in taxation matters. There should be no lawyers. While this is essential if those small businesses caught up in the Cranston affair are to have any form of proper tax justice, it should be extended to all small enterprises.

And in my view if tax officials are aware that their decisions will be subjected to a non-lawyer independent appeal body that will end the power corruption that currently takes place in the ATO and contributed to the Cranston affair. With the best intentions in the world, if any group of people have the power to investigate, prosecute, judge, appeal judge and sentence it almost inevitably leads to a power corruption where injustice dominates and worse still situations like the Cranston affair emerge.