Federal Court judge warns tax commissioner

A Federal Court Judge has warned the tax commissioner he could face charges relating to the bad behaviour of his department.

ATO Commissioner Chris Jordan during Senate estimates hearings in Canberra last week.

The current bad behaviour of the Australian Tax Office in small business court cases, which longer term threatens the level of collection of Australian taxation revenue, has caused a senior Federal Court Judge to warn the tax commissioner that potentially in future he could face charges for offences that carry a 10-year jail penalty.

I believe it is the first time in Australian history that such a senior judge has raised the possibility of charges being laid against the taxation commissioner for the bad behaviour of his department. It is also worth noting that Mr Justice Logan did not personally name the current incumbent but cited the position.

I hasten to add that in the particular case last week the judge decided that the commissioner should not be charged with a breach of section 43 of the Crime Act 1914 relating to attempts to pervert the course of justice. His fellow judges had a different view to Mr Justice Logan and were not critical of what the commissioner’s lawyers did in the court case.

The statement of the judge and the behaviour of the ATO in the Federal Court is in complete contrast to the assurances the current Tax Commissioner Chris Jordan personally gave to the Senate Estimates Hearings that internal investigations into the Cranston affair did not reveal “systemic issues’’ at the ATO.

My readers will be well aware that I have written extensively to show the tax paying community that there are deep problems in the ATO and Australia desperately needs an independent appeal body to protect small business from bad behaviour by the ATO. My most recent commentary went under the heading ‘Unfair ATO a dangerous threat to innovation’.

My personal view is that Jordan is doing a magnificent job in pursuing tax from large corporations playing the multi national game (Jordan came from KPMG and knows how that game is played) but he does not understand what is happening at the small business area of his department. It’s a tragedy. So let’s look at the latest case.

Michael Shord is aged in his late 60s and holds UK and Australian passports and served in the UK armed services before coming to Australia.

Between 2006-2011 he was based in Perth but worked overseas as an oilfield diver or diving supervisor. Shord believed that because he was employed by overseas contractors he did not have a large Australian tax bill. But the tax office went back four years and demanded $149,967, most of which was penalties and interest

But the key fact as to whether he owed such a large sum was whether he was an employee of the overseas oil contractors or not.

The case went before the administrative appeals tribunal and during the hearing the lawyer for the taxation commissioner admitted that the ATO now believed that Shord actually WAS AN EMPLOYEE. That meant that, subject to other issues, he had a vastly reduced tax bill. But the administrative appeals tribunal made a mistake and handed down a judgment in favour of the ATO on the basis that Shord WAS NOT AN EMPLOYEE. It was a clear error.

Under the Westminster system of government the Australian taxation office is supposed to be what is called a model litigant.

The ATO was anything but a model litigant in the Shord case and not only did it not alert the tribunal to its mistake but incredibly tried to block Shord from reversing the tribunal mistake on his appeal to the full Federal Court. Not surprisingly the Federal Court upheld the appeal by Shord.

But with that decision against the ATO came an unprecedented statement from Mr Justice Logan who has a deep sense of constitutional history. Let me extract some of his remarks:

Mr Justice Logan: “Part of the constitutional history of the United Kingdom and, thus, derivatively, our own, was oppressive, unlawful behaviour by the Crown in the 17th century in the imposition, collection and recovery of taxes and a resultant and vicious civil war leading to regicide and not a republican ideal but military dictatorship.

“The later restoration of the monarchy was on terms that evolved into the constitutional separation of powers, legislative, judicial and executive and what we have come to know as the Westminster system of responsible government, each feature of which is to be found in the Australian Constitution. The standard of fair play expected of the Crown and its officers in litigation is a standard in keeping both with the avoidance of behaviours that, in an extreme form, led to the civil war and with the later constitutional settlement. Once this heritage is understood, the requirement for its observance is, or should be “elementary”……..

“The standard of fair play to be observed by the Crown in dealing with subjects in litigious business, termed the duty to act as a model litigant, antedates and, if anything, is more onerous than the duty which all parties and their lawyers have in proceedings before this Court to assist in the achieving of the “overarching purpose” of facilitating the just resolution of disputes ….

“As I have observed, the Tribunal’s denial of procedural fairness to Mr Shord in relation to the employment issue is patent….the Commissioner should not just have not opposed the amendment but readily consented to it and actively promoted the upholding of that ground. That is how a model litigant ought to behave….

“Departures from model litigant behaviour can, in particular circumstances, constitute professional misconduct, a contempt of court or an attempt, contrary to s 43 of the Crimes Act 1914 to pervert the course of justice. In the circumstances of the present case….. it appears to me that the lack of a ready concession of the jurisdictional error was just the result of a lack of understanding……,. Given that experience, and a patent absence of any bad faith, there the matter should rest, save perhaps in respect of costs.”

This time there will be no action but the above strong and clear words from Mr Justice Logan should be conveyed to all those who work at the ATO plus the assistant treasurer and treasurer of Australia so they understand what is happening. One day they will do something about it.