Flat White

The ATO is a threat to the rule of law

29 April 2021

3:32 PM

29 April 2021

3:32 PM

You’d think that the Australian Taxation Office shouldn’t present a threat to the rule of law in Australia. You’d think that that sort of threat would only come from the expansionist ambitions of the likes of the Xi Chinese dictatorship.

But no. The fact is that the ATO attacks and subverts the rule of law in Australia on a constant and systemic basis. It’s part of its audit and enforcement DNA.

Take this most recent example.

Between 2012 and 2015 criminals defrauded the ATO of at least $2.45 billion in GST. The biggest tax scandal in Australia’s history involved a simple scam.

Criminals sold gold to refiners. Refiners paid for the gold and added GST as required by law. The criminals didn’t pay the ATO the GST — and disappeared. The ATO knew about the potential for this from around 2003. It was repeatedly warned that it was occurring from about 2014, yet did nothing to stop it until 2017.

Instead of going after the criminals, the ATO targeted the gold refiners. I’ve written about this before in Spectator where the ATO has ‘invented’ a debt against a refiner where no money was owed. The Taxation Ombudsman has savaged the ATO for its behaviour. The ATO has put many small refiners out of business.

But there’s a big refiner that fought back.


Around 2016 the ATO withheld GST refunds due to this large refiner and charged them interest and penalties — the total being around $209 million. The ATO tactic was the same as the one used against the small refiners Lynn and Jerry Reid which I explained in my earlier article.

The ATO knew that the big refiner was not part of the GST gold scam, but still went after them. The refiner took the case to the Administrative Appeals Tribunal which ruled in favour of the ATO. The basis of the AAT decision was (hold on to your hats) that emails between two people, not associated with the refinery company, discussed issues around the gold scam.

This email exchange amounted to gossip and hearsay, contained no evidence and was essentially idle chat between the people involved. These emails were ‘hidden’ amongst 44,000 pages of ‘evidence.’ The persons were never questioned. In the AAT proceedings, the emails were never brought to the attention of the company. The company was not made aware that the emails existed or, further, that the emails would be the reason for the ruling against the company.

The company appealed to the Full Bench of the Federal Court and won in November last year. In layperson’s language, the Federal Court effectively said that reliance on gossip to ‘invent’ a tax debt was nonsense.

But the ATO took a further step that demonstrates just what a threat it poses to justice and the rule of law in Australia.

The ATO went to the High Court and asked the High Court to consider that the AAT ruling was correct. Think of that. In seeking ‘leave to appeal’ to the High Court, the ATO was saying that it had the right and legal capacity to declare, create or invent a tax debt based on gossip.

In other words, if there were, for example, a Twitter or Facebook haranguing session between two people you did not know and they were saying that you were a tax cheat, then that would be enough for the ATO to declare you a tax cheat. The ATO could then raise a tax debt against you and proceed to collect that ‘debt’ by raiding your bank account.

This is not how justice in a rule-of-law society operates. Justice is based on facts and truth which are tested by examination and cross-examination. We are not held responsible for what we have not done because someone makes a gossipy comment. That the ATO thinks it has the capacity to do just that demonstrates a great sickness within arguably the most powerful authority in the federal bureaucracy.

Thank goodness the High Court rejected this ATO application. The Federal Court ruling for the company now stands. The company is not guilty. Gossip does not rule. The rule of law and common sense does rule.

But consider further. The ATO has spent in excess of $40 million on legal fees pushing this case. It’s reasonable to assess that the refinery company has spent several millions on its defence. That is, the ATO has the power of the bully. Ordinary taxpayers and small business people cannot defend themselves against such ATO aggression.

In asserting its right to raise tax debts based on gossip the ATO is saying that it is the law and not subject to the rule of law.

Such an attitude starts at the top. By this, I mean that the Tax Commissioner is a tax dictator. By statute, all Commonwealth taxing power is vested in the Tax Commissioner whoever holds that position. As in China, dictatorships subvert the rule of law replaced by the rule of the dictator. This is the ATO.

This cannot be allowed to continue. Justice must prevail. The USA faced a similar problem with its Internal Revenue Service in the 1990s. The USA reformed the IRS through legislative action. The dictatorship was abolished. This provides a model for reforming the ATO. We, too, need action if tax justice is to be delivered in Australia.

Ken Phillips is Executive Director of Self Employed Australia.

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