How would you feel if you owed the Australian Taxation Office nothing—in fact the ATO owed you money—yet on the back of its debt the ATO imposed a fine on you? Sounds incredible? Well, this is what has happened to a small family gold-refining business on the Gold Coast.
To provide background, between around 2012 and 2015, international criminals defrauded an estimated $2.45 billion from the ATO through a GST scam trading in gold. The scam, probably the largest in Australia’s history, was simple. Criminals sold gold to refiners. Refiners paid for the gold and added GST to the payment as required by law. The criminals didn’t pay the ATO as required by law—and disappeared.
The ATO knew about the potential for this sort of scam from around 2003. It was repeatedly warned that it was occurring from about 2014, yet did nothing to stop it until 2017. The solution was simple. Change the law to require the refiners to pay the GST directly to the ATO.
It’s easy to subscribe to the view that either the ATO was massively incompetent or worse. Yet no investigation has occurred into how the ATO stuffed up so hugely.
In response, the ATO has gone after the refiners. The criminals, of course, have disappeared.
Lynn and Jerry Reid are small business, Gold Coast refiners. They’ve been targeted by the ATO. The ATO’s targeting has been investigated by the ATO ‘auditor’: the Inspector General of Taxation and Taxation Ombudsman. Its report is scathing of the ATO.
Lynn and Jerry migrated to Australia from the UK in 2005. Jerry was in the UK’s elite Prime Ministerial protection squad. He then served in the South Australian and then the Queensland police forces. Lynn served in the US Navy with high-level security clearance. Lynn and Jerry sold their home to purchase a small, long-established Gold Coast refinery business in June 2016.
A month later, In July 2016, the ATO refused to pay Lynn and Jerry the GST refund to which they were entitled. Eventually, a total of $1,309,565 was withheld, placing their business under huge cashflow stress.
But more. Even though the ATO had all of Lynn and Jerry’s money, the ATO declared that the $1.3 million was a tax ‘debt’ and imposed an additional debt ‘penalty’ of $173,107 upon them. It’s literally the ‘invention’ of a debt from thin air. But this is the power of the ATO. It can invent tax debt.
The ATO then proceeded to raid (garnishee) Lynn and Jerry’s bank accounts before informing them or the invented ‘debt’ was due. The list of abuse by the ATO is extensive. It’s detailed in the IGTO’s 77-page report and summarised in our analysis.
Essentially, the ATO breached all its internally required legal procedures in how it handled the debt collection. This included, for example, that the ATO failed to keep required records of its processes, no evidence of attempting to contact Lynn and Jerry as required, failure to record payments from Lynn and Jerry, and more.
The ATO never accused Lynn and Jerry of wrongdoing or criminal activity. The ATO gave no reasons to justify why it targeted them. The IGTO report refers to the ATO’s actions as ‘unfair and without basis’. Yet Lynn and Jerry find themselves with the ATO holding $1,309,565 of their money and ‘owing’ the ATO $173,107.
The IGTO says that the ATO owes Lynn and Jerry an apology as well as compensation. The ATO has done nothing.
The way Lynn and Jerry have been treated by the ATO is a scandal in itself. It’s yet another demonstration of its abuse of small business. This was detailed in the 4 Corners program Mongrel Bunch of Bastards in 2018. Nothing has changed since then.
Why, then, are Lynn and Jerry being targeted by the ATO?
We can only guess that it’s to do with a cover-up and deflection from the ATO’s huge failure, or worse, in the $2.45 billion GST gold scam. The ATO did nothing to stop the scam until it was too late. This demands a major investigation of the ATO. But nothing is being done.
Instead, we witness continued ATO abuse coming from its audit and enforcement division. This has to stop. The reform solutions are known and articulated. The Small Business Ombudsman has also made important reform recommendations.
It’s about time that the Morrison government stepped up. Continued inaction by the government is simply unacceptable.
Ken Phillips is Executive Director of Self Employed Australia.
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