Laws are needed to back small business against the tax office
AUSTRALIAN BUSINESS REVIEW May 21, 2019 Robert Gottleibsen
Commissioner of Taxation Chris Jordan. Pic: AAP
Back to unfinished business. We have all been concentrating on the mistakes of the ALP and forgetting that Scott Morrison was able to focus on entrepreneurship because of a remarkable set of small business boosts set up by minsters Michaelia Cash and Stuart Robert.
The reforms to change the bad Australian Taxation Office culture, the fair contracts commitment and the speeding up of payments to small business were stunning achievements. But in the chaos that was the 45th parliament there were limits to what they could do.
And as we went into election mode we saw that the bad culture that infected banks —and which is being rapidly remedied—- is still alive and well in the ATO, despite both major political parties agreeing to set up an independent non-lawyer small business tax tribunal to change the culture.
The job is not finished and we are going to need legislation to back the small business appeals body and scrap the horrific legislative proposals to widen the ATO’s power in the trumped-up guise of attacking the cash economy.
All of us (including the politicians) know that when a political party comprehensively wins an election, as Scott Morrison has done, one of the dangers is that it will look for new areas and not monitor the progress of some of the steps that were taken to achieve victory.
And I underline that the tax office bad cultures are still there and it will require great vigilance to stop the ATO falling back into its old bad practices.
Indeed the ATO’s pre-election antics indicate that it may have learned nothing.
And so when last month the Australian Small Business and Family Enterprise Ombudsman Kate Carnell declared that the ATO was destroying small businesses which appealed before the Administrative Appeals Tribunal (AAT), there was a strong response from the tax office.
In essence the tax office isolated its examination to about four cases that had finished hearings with the AAT and compared the number of cases before the AAT to its small business clientele.
In effect it was dismissing the allegations of Kate Carnell. It turns out she was absolutely right. Again what stuns me is that despite all the publicity and all the facts that have been released the ATO does not understand the problem, just as the banks did not understand their problem until the royal commission showed it to them graphically.
Kate Carnell. Pic: Kym Smith
In Australia there is a clear moral rule that when an enterprise appeals to the court system against a tax ruling, the taxation department should allow that appeal to go through and not take action while the appeal is taking place.
The ombudsman had revealed the stunning fact that 12 per cent of those businesses that mustered up the money and courage to go before the AAT found that the tax office continued to take action against them.
Given the ATO’s dismissive response I asked the small business ombudsman to provide more details so that the readers could determine who was right – the ATO or the ombudsman. The ombudsman said they examined 143 cases of people who appealed to the AAT. Clearly not all those cases reached final judgment but they had all put themselves before the AAT.
The tax office took action against 17 of those 143 enterprises, which in good faith had gone to the AAT. And it gets worse. Three of the 17 actually didn’t have severe action against them until they went to the AAT. And the other 14 saw the tax office continuing with their attacks. The appeal made no difference.
Again, of the 17 cases, two of them were wound up and the businesses destroyed by the ATO. Another four received the lash of the garnishee which is so damaging to many small businesses. The rest received other actions. I have described the emerging growth of cash flow lending. That opportunity will be snuffed out unless the small business tax tribunal becomes a central pillar of tax policy. That’s why we need legislation.
An essential part of that tribunal is that the ATO cannot take action against those that appeal while the case is continuing. That should have been the attitude of the tax office all the way through.
Had the ATO responded to the Ombudsman with a statement that admitted gross error and assured the community that it would never happen again, then it could be argued that the fundamental changes required in culture of the ATO has started.
Instead the learning process has still to begin. An ATO culture change is essential for Morrison to achieve his goals. Australia is indebted to the work and courage of Kate Carnell. Kate, your work is not finished. Keep monitoring and disclosing the fall out from the bad culture.
If Australia is to prosper we need both major political parties to continue to support the small business tax tribunal and the supporting appeal structures, and to halt the new ATO power grab.