Tax appeal changes a victory for small business in ATO battle

Small business’ win over the ATO on tax appeals is the biggest step for promoting Australian entrepreneurship in decades.

Federal Small Business Minister Senator Michaelia Cash. Picture: Kym Smith

Despite the turmoil in Canberra, Australia now looks set to have a fair tax appeal system for small business, the biggest step to promote Australian entrepreneurship in decades.

Given legislation is currently impossible, the government’s proposed small business tax tribunal required agreement from the Australian Tax Office and Treasury. That task seemed like Mission Impossible but on Friday the ATO issued a statement that means it’s now all systems go.

From now on, if a small business has a genuine tax dispute, it will be able to go before an independent tribunal responsible to the Administrative Appeals Tribunal — not the Australian Taxation Office. Most of the cases will be heard without lawyers.

The vast majority of small business tax cases are about the facts. Was that revenue taxable? Was that a genuine business expense? Was research expenditure really research? And so on. Lawyers are not required.

The ATO has now agreed to this system and set rules whereby if a case involves important principles, they will fund the small business’s legal costs. That means that every ATO tax auditor now knows that they will have to justify their case not to mates (as per the current system), but to an independent body.

The bulk of tax auditors will have no problem justifying their positions. But the minority of rogue auditors will no longer be able to bully small business with fictitious claims. Appeals will actually start with the existing system, but the small business can switch to the tribunal. Again, the existing system often works but it also breaks down, creating shocking abuse.

Once tax auditors know their work is liable to be reviewed by an outside body, many of the current problems will disappear. Small business has never had access to the courts system, because it is usually too expensive.

It’s just under three years since I explained to the ATO that the nation needed an independent small business appeals system. It has taken countless commentaries graphically illustrating the small businesses abuse taking place in the current system. We now have such a body and I first want to thank my digital and print readers for staying with me over the long journey. I also want to thank the editors of The Australian who backed me all the way. Also, thanks to the ABC, which decided to test the facts in my commentaries and then go much further on Four Corners.

But the credit for achieving a change as fundamental as this goes much further than the media. I actually want to start with tax commissioner Chris Jordan. He could have sat back and taken his chances with the next government. Instead he realised that the integrity of Australia’s tax system was in jeopardy and so he had to act. It’s not easy for a person with the power of a taxation commissioner to change direction. But he did it.

This change in direction could never have been achieved without the help of a wide range of people. I start with the judiciary. The comments of Justice Logan and retired Federal Court Judge Richard Edmonds SC showed just how broken the system had become.

But equally important was the work of small business ombudsman Kate Carnell and the head of Self-Employed Australia Ken Phillips. And now to the politicians. Chris Bowen and his assistant shadow treasurer Andrew Leigh have been the subject of regular criticism from me over the unfairness of their retirement tax structure. But in this case, I give full praise to them. They recognised the abuse and proposed a solution which was a huge advance on the current system.

But they are not in government and it fell to the government to do the job properly. Despite the turmoil in Canberra, assistant treasurer Stuart Robert and the minister for small business Michaelia Cash took the time to fully understand the issues and realised that the only long-term way to foster Australian entrepreneurship and protect the integrity of the small business taxation system was an independent small business tax tribunal. The long delay in gaining ATO approval provides the clue that they had to fight with vigour and determination against entrenched bureaucracies. These days, politicians all too often cave into their public servants. If the opinion polls are right, they will lose office in the May election, but they can tell their descendants that they were able to help future generations of Australians.

Footnote: I am delighted to discover that at the top of the ATO there is now a real enthusiasm for the new body and the intention to make the tribunal work. But, as always in big organisations, further down there is entrenched opposition to change and the public servants plot schemes to kill the new body by flooding it with crazy bureaucratic legalistic red tape. Senator Cash does not face election in the 2019 poll and if the tribunal is destroyed by these legalisms then over the next three years, she will dedicate herself to demanding an ATO Royal Commission and, with the backing of the judiciary and all sections of the media (a rare combination) she will probably get it. Hopefully it’s not needed.