Small business needs a fair tax appeal system

ALP’s policy doesn’t go far enough, but the Coalition’s plan for a small business tax tribunal will restore confidence in the system.

Former ATO deputy commissioner Michael Cranston. Picture: AAP

The appalling practices of the Australian Taxation Office in its handling of small business appeals appears to be eroding confidence in the tax system. Unless properly addressed, it will soon endanger the Australian revenue base.

That’s why it was so sad to see a first-term Liberal MP in Bronwyn Bishop’s old seat backing a version of ALP policy, rather than that of his Coalition government, which finally has come to understand the depth of the problem and has put forward a carefully considered solution which will be a cornerstone of its election campaign.

Readers of both The Australian’s website and print editions have always shown a deep interest in the ATO abuse of small business and when we revealed that the ATO had laid 66 charges against the arguably Australia’s most significant whistleblower (under the heading “ATO whistleblower Richard Boyle pays the price”) the digital site lit up.

Some two weeks later, Adele Ferguson, the Fairfax journalist who last year unveiled the whistleblower, returned from writing a book on banks and in The Age and The Sydney Morning Herald pointed out that Boyle faced a possible 161 years in prison — compared with 181 years for serial killer Ivan Milat and the 46-year minimum term in the sentence for mass murderer James Gargasoulas.

I have no access to either The Age or SMH readership figures, but The Age “most read” comparison on the day showed the ATO abuse commentary ranked above the dramatic Cardinal Pell abuse articles. All major news websites have enjoyed incredible ratings figures after the Pell abuse verdict was released. For ATO abuse to rank higher than Pell’s abuse verdict confirms the community horror at what is taking place in our tax collection mechanisms.

That entrenched ATO abuse culture clearly has not changed; it drove Australia’s tax collectors to press for a 161-year prison sentence, seemingly in fear others staff members would become whistleblowers and tell more of the truth about what is happening inside the ATO.

The leaders of the Coalition now have their finger on the small business community pulse and has announced a small business taxation tribunal, where tax auditors will have to explain to an a independent arbiter — not one appointed by the ATO — why the tax money was owed. The small business person would explain why it was not owed. No lawyers will be needed in most cases and there will be pre-hearing procedures to filter silly claims. If properly implemented it is an excellent abuse-curbing policy which will restore confidence in the taxation system and end the danger to revenue.

The ALP policy is to appoint a second commissioner for appeals who will still report to the Tax Commissioner. That’s much better than the current kangaroo court appeals for small business but it will not solve the problem and restore confidence in the system because the ATO remains investigator, prosecutor, judge, sentencer and appeal judge. The separation of functions may mean abuses may subside for a short time but they will soon return.

The Coalition gave one of its first-time politician members, Jason Falinski, the job of chairing the standing committee on taxation and revenue to test him out. His committee decided to back an autonomous appeal group within the ATO — a version of the basic ALP policy.

Bronwyn Bishop, the former member for Mackellar (Falinski’s seat), which includes Palm Beach, might have had her controversies, but she would never defy cabinet and support a short-term policy that did not address the underlying problem.

And if there was any doubt about the depth of the problem, it was eliminated by the dramatic evidence given by former ATO deputy commissioner Michael Cranston which exposed false ATO audits. Cranston was found not guilty in part because it appeared the jury believed his evidence.

The tax office investigation system, at base level, is spearheaded by so-called “auditors”. In personal and small business tax affairs the ATO’s auditors all too often do not do the detailed work but come up with a theoretical liability that is not right. They then negotiate using their ability to bankrupt the victim.

Cranston told the jury: “I was always looking out when my auditors went a bit too far, which happened often”.

Elsewhere Cranston said he was concerned about the correct application of tax law and was “always looking out” for examples of when tax office employees were “too aggressive”. The jury was told that there were hundreds of cases where “the wheels fell off”.

The Cranston evidence confirmed the conclusions of top tax lawyer Richard Edmonds SC who said there was a mentality in the ATO that on the whole taxpayers were “cheats and liars” and so any actions against them could be justified. He was supported by Justice John Logan, who threatened action against ATO officials over their bad behaviour in court actions.

The Coalition is trying to stop the ATO small business abuse by regulation and convincing the ATO that the revenue base is in danger. Eventually we will need legislation, but it’s too hard in the current parliament.

If the ALP policy is introduced it means that it will be simply halftime in the battle to stop unfair small business abuse. For as long as it takes, the media, the judiciary, the small business ombudsman and all other groups will continue the fight for a proper appeal system while the revenue base continues to be endangered.