When the Australian Taxation Office smells blood

ATO commissioner Chris Jordan, right, at a parliamentary committee hearing. Picture: AAP

This commentary is primarily addressed to two people: Treasurer Josh Frydenberg and the Assistant Minister to the Prime Minister, Ben Morton. All Australian readers are, of course, invited to join but I must warn it will be a sickening experience.

You are about to learn the new vile tax collection methods being adopted by certain fiefdoms in the Australian Taxation Office.

It is unlikely the revelations will be totally new to Frydenberg because, although he was helped by small business minister Michaelia Cash, the way he crafted his budget to skilfully benefit small and medium sized business showed that he personally went into the land of entrepreneurs.

In the tax office there are some fiefdoms that are ethical and undertake their tasks in accordance with the written manuals and what the ATO tells the parliament is happening.

But there are other fiefdoms that have their own unwritten manual, and no small business, entrepreneurial family is immune from their bastardisation including mothers and their young children. And the way the rogue fiefdoms work came out in the paperwork linked to a full bench Federal Court hearing, so the senior people at the ATO can’t say they don’t know what goes on.

The ATO lost the case but it then gave a ringing endorsement of the horrible practices by requesting the High Court review the adverse Federal Court full bench decision that unanimously declared no tax was owed by the family.

The matter starts way back to just prior to the global financial crisis when a land development entrepreneur paid too much for a property. Over time he developed the land and approximately broke even. The original purchase and the development was conducted via a discretionary trust with four daughters and a minor as potential beneficiaries.

A bad ATO fiefdom was allocated this case. By refusing to allow interest as a tax deduction there was a fictitious ATO-calculated taxable profit that was theoretically made by the trust.

That’s back around 2013-14. The internal ATO appeal process sometimes works but it’s often stacked with mates of the bad fiefdoms. Australia desperately needs a US-style fair low cost appeal process that is entirely separate from the ATO.

Because there was no actual profit there was no chance of discretionary distribution. That did not worry the ATO and it began assessing the four daughters for tax on income they had never received. For the last 30 or 40 years, discretionary trust beneficiaries have been able to make a declaration renouncing any entitlement and the matter is closed. And on legal advice that is what the daughters did, and to the credit of the tax office the matter in 2014 was closed. And that is where this matter should have ended. But the fiefdoms saw four daughters and smelt blood.

At the same time someone in the tax office wanted to challenge the long precedent that enabled trustee beneficiaries to renounce their rights. In theory there is nothing wrong with such a challenge but the right way to do it is to run a test case where the ATO funds both sides. And this was a bad case to undertake a test because there actually wasn’t any real profit to distribute. In 2015 the ATO attacked the long-established practice of renouncing rights to trust and restored the case—small business needs certainty and not this sort of bad practice.

At the same time, because the case had fallen into the clutches of the unethical fiefdom, they couldn’t resist the fun of simultaneously making life totally miserable for four women.

Australian tax rules are totally unfair and are designed to make life potentially almost impossible for small and medium business if they get into the clutches of the bad ATO fiefdoms.

Under the Australian law, as soon as an assessment is made—no matter how stupid--- the person is immediately liable and can be bankrupted while any appeal is taking place. In fact, as we saw in this case, the strategy is to bankrupt them so they can’t appeal.

Nowhere else in the western world would such a rampant practice be undertaken and approved by the senior tax executives. We got a small peep when whistleblower Richard Boyle was prepared to risk a lifetime in jail to tell the community the truth about garnishing. What he revealed was merely the tip of the iceberg.

ATO whistleblower Richard Boyle. Picture: Dean Martin

Simultaneously with the test case the women received:

* Over 150 garnishee notices (April 2014 to January 2019)

* Six bankruptcy notices (April 2017 to February 2020)

* Two bankruptcy proceedings in Federal Circuit Court.

The female trust beneficiaries could not have a bank account. One had a longstanding investment property and ATO fiefdom garnished the rent so she could not pay the interest.

In the US the assessment is not payable until the appeal process is completed, which is totally fair. But to do that you must have a proper and swift appeal process and we do not have it. The females actually went to the Administrative Appeals Tribunal who took more than two years to reach a decision, so enabling the thugs in the ATO to have a ball. The full Federal Court had the AAT ruling dismissed in fairly short order and were not impressed that right in the middle of the Federal Court case the ATO launched a bankruptcy thrust on one of the females. I warn readers that tomorrow they will discover that the ATO thuggery becomes much worse and enters the school precinct.