Flat White

Why we must fix the feral Tax Office

9 February 2021

4:00 AM

9 February 2021

4:00 AM

When underhand, commercial bullying happens in the private sector, there is righteous community uproar. Regulators investigate. Even Royal Commissions can occur. But when the same type of behaviour is executed by the public sector towards individuals, then for the most part the issue simply slides out of sight.  

The Australian Taxation Office must sit at the top of the pole for standout, underhand, commercial bullying in Australia. Take this current case of mother of two school-age children, Natalie Carter.  

Natalie is a beneficiary of a family trust. The family business, in which she has no operational or decision-making role, is structured like very many small and medium businesses in Australia. It’s a trust. If it makes a profit, money can be distributed to the ‘beneficiaries’ who then pay the tax.   

In Natalie’s case (see full details here), the ATO ‘assessed’ that the family trust had made a profit. And here’s what then happened: 

The ATO declared that Natalie had received profit from the trust as a beneficiary.  

The problem was that no profit had been made. The ATO assessment was wrong. The ATO didn’t deduct expenses (interest and so forth) from the trust revenue. The trust had not sent any profit to Natalie because there was no profit.  

But the ATO still said there was (theoretical) profit and forced Natalie to pay tax even though she had no income. The ATO can do this. It can force someone to pay tax even if the alleged debt is in dispute. The ATO can raid your bank account and you can do nothing to stop it 

But Natalie then did what has been accepted as law for 30 years. She signed papers legally rejecting the (theoretical) profit. Sounds sensible. But no! The ATO refused to refund the tax already paid. 

Natalie appealed to the Federal court where all three judges agreed with Natalie. She owed no tax! Natalie won. The ATO lost. 

But the ATO is now appealing to the High Court, arguing that even if someone has not received a profit, they must still pay tax. The ATO wants to stop Natalie from rejecting the theoretical profit so it can force her to pay tax on income she does not have.  

Crazy? It’s just stupid. If the ATO wins, it can pull this stunt on anyone.   

And here’s how this weird obsession by the ATO to wineven when it is wrongwould play out. Say this 30-year law were chucked out.  

Take a divorce where the husband is a real scam man. He has a business with a trust. He has the trust make a profit but then disappears overseas with all the money and his new mistress. He also makes a theoretical profit distribution to his ex-wife. The ATO says the ex-wife must pay the tax. But if the wife cannot legally declare that she doesn’t want the theoretical profit, she is screwed. The ATO forces her into poverty. Nice one ATO! 

Sensible laws are there to protect people from scammers. What the ATO is seeking to do in the Carter case will enable the ATO to facilitate corrupt behaviour. But Natalie’s case is just one of many examples of ATO bullying. It’s so bad in the ATO that its systemic. 

If the ATO were a bank, for example, it would have been dragged before the Hayne Royal Commission into banking. It would surely have been judged as one of the worst examples of bad behaviour and would have resulted in the axing or resignations of all its top people.  

The Carter case is just another example of why the ATO must be reformed. Let’s be clear. The reform of the ATO is needed in the audit and enforcement division where abuse of small business people is pretty much routine.  That division is out of control.   

Ken Philiips is Executive Director of Self Employed Australia.

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