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Bad news ahead for government on tax office GST scandal

AUSTRALIAN BUSINESS REVIEW   May 28, 2019  Robert Gottleibsen

Refining gold. Australia’s gold refining industry has effectively been wiped out.

Just before Michael Sukkar was returned to the ministerial post of assistant treasurer, he must have sniffed that he faced grave danger and big decisions in the portfolio.

While the assistant treasurer reports to Treasurer Joss Frydenberg, Sukkar is directly responsible for the Australian Taxation Office and superannuation. These are areas I follow closely so I can help him make sense of those early danger warnings.

When Scott Morrison was finalising his ministry appointments an Australian Taxation Office “well-placed source” leaked to Adele Ferguson of Melbourne’s The Age and The Sydney Morning Herald that the ATO wanted more than $800 million for yet another attempt at getting its technology right.

There were also details of proposed new appointments. and other plans. It’s most unusual for any government department to leak its “wish list” just before a ministerial appointment. Normally you tell the new minister first.

However, such actions often mean that there is some very bad news ahead. So it was no surprise that towards the end of the report is an obscure reference to a court case over gold where an adverse decision would likely attract “media attention” — read Robert Gottliebsen— and impact a line of “similar cases”.

My bad news for the minister is that if the ATO “wins” the gold case the whole Australian GST system in Australia could be in jeopardy and fixing the mess will occupy the new assistant treasurer for a year or two.

If the ATO “loses” the case, then poor Michael Sukkar will have the job of telling Josh that the government could be up for many billions of dollars via those “similar cases” and may be required to reverse hundreds of millions in revenue the ATO had invoiced but will never receive.

In desperation the ATO also canvassed a widening of the GST to cover food. Scott Morrison scotched the idea in total ignorance of the dark background.

Michael Sukkar faces grave dangers and big decisions. Picture: AAP

Michael Sukkar faces grave dangers and big decisions. Picture: AAP

I had not planned to comment on the gold case until a decision was made by the Australian Administrative Appeals Tribunal, but now the ATO has made the matter public the nation needs to know the issues.

Hearings finished last September. In due course the AAT will make its decision in accordance with the law of the land. My commentary is about the national issues the ATO’s actions have raised, not the AAT decision.

My regular readers will know that behind the gold case is the ATO’s “death gun”, which it used to wipe out the entire Australian gold refining industry (apart from the government-owned Perth mint) including the wonderful Australian skills base we had built up.

And the crooks who stole the GST money were not chased and it looks like much of the stolen GST money found its way to Islamic terrorists who were fighting Australian soldiers. The money lost appears to be between $600 million and $1 billion.

Leave aside the court issues, this is a monumental scandal which was caused by ATO legislative carelessness.

In short, when Peter Costello set up the GST system for gold, he followed London. But a few years later London and most other jurisdictions’ that copied the London system were raided and lost large sums until they changed the act. Australia was not raided but suddenly around 2012-13 the crooks discovered we still had the old London system so were ripe for the picking.

In simple terms, under the former “London system” when gold refiners bought non-pure gold, they paid the market price plus GST. The refiners then claimed that GST back from the government—exactly as everyone does around Australia.

What should happen is that sellers of the gold pay the GST they have received from the refiners to the ATO. But under the scam, the sellers of the impure gold disappeared and most money appears to have gone to the Middle East via Singapore.

Many refiners knew something was wrong and alerted AUSTRAC. The transaction body was too busy chasing the Commonwealth Bank. Quick action to change the act was required. Instead the ATO refused to refund the GST that the refiners had paid to the crooks and then issued the refiners with monumental tax assessments.

The “death gun” worked and they were almost all wiped out.

Not until I started writing about the scandal in 2016 did the ATO change the rules but it was all too late. The Inspector General of Tax looked at the matter and said that the ATO should have chased the crooks and not withheld GST from the refiners to send them broke. But again it was all too late.

The liquidators of the refiners have appealed against the assessments and other ATO actions. And that’s the basis of the court case and the AAT will decide how the law applies in this case. If the liquidators win, the later damages claims will be many billions.

The ATO will have put forward at least three defences.

First, ATO officials earlier had told the parliament that the matter was a scam. The AAT will need to decide whether any scam was a criminal matter and should have been decided in the criminal courts.

Second, the ATO challenged the whole basis of gold refining around the world. The AAT will need to decide whether the rest of the world’s gold refining practices are wrong. The world’s gold refining industry is fascinated that this should be an issue Down Under.

Thirdly there is Division 165 of the GST Act: All around Australia there are countless supply chains where businesses pay and claim back GST many times. If one business in the supply chain is a crook and steals the money does that mean that everyone in the supply chain is vulnerable and must cover the loss? That would send countless thousands of businesses broke. I emphasise this in an issue for the AAT to decide on the facts. I merely raise the issue.

However the ATO has spent tens of millions on this case and, potentially, taxpayers’ money is being used to endanger the whole Australian GST system.

It’s really important for the nation that the whole ATO operation and its anti-small business culture be reviewed before the minister makes new appointments and big investments.

Please, minister, do not be bullied by press leaks.

And I have some further reading for the minister on our web site: The bungles that forged Australia’s biggest tax fraud and “The ATO should halt its attack on gold refiners”.

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