Small busi­ness hope in O’Dwyer’s ATO plan


Aus­tralia has taken the first step to­wards an ur­gently needed fairer tax sys­tem for small and medium-sized busi­nesses.

And if we take the next and vi­tal steps, it will be an enor­mous boost for Aus­tralian in­no­va­tion and small and medium busi­nesses, plus con­fi­dence in a tax col­lec­tion sys­tem that is now in dis­ar­ray in this sec­tor.

Full praise to the Min­is­ter for Rev­enue and Fi­nan­cial Ser­vices, Kelly O’Dwyer, for tak­ing that first step, but without the sub­se­quent steps we may be worse off. I have in­ter­rupted my hol­i­days be­cause of the ex­treme im­por­tance to the nation of that O’Dwyer first step.

She an­nounced draft leg­is­la­tion to au­tho­rise the Aus­tralian Tax­a­tion Of­fice to dis­close busi­ness tax debts to credit re­port­ing bu­reaus “where the busi­nesses have not ef­fec­tively en­gaged with the ATO to man­age their debt”.

As I will ex­plain be­low, that is ef­fec­tively hand­ing the ATO an atomic bomb to blow up small busi­nesses. At present the ATO is in no po­si­tion to prop­erly han­dle that ex­treme power.

But there is a vi­tal qual­i­fi­ca­tion in the ex­po­sure draft: “The draft leg­is­la­tion re­quires the ATO to con­sult with the In­spec­tor-Gen­eral of Tax­a­tion be­fore tax debt amounts are re­ported to credit re­port­ing bu­reaus”.

In other words, an in­de­pen­dent group is be­ing brought in to mon­i­tor the ATO. Hal­lelu­jah! This is a mon­u­men­tal de­ci­sion by O’Dwyer and if prop­erly im­ple­mented, is the big­gest change to small busi­ness tax­a­tion in decades; it will boost in­no­va­tion and small busi­ness de­vel­op­ment, which is now be­ing crip­pled by bad tax ad­min­is­tra­tion. It is far more im­por­tant than the re­cent tax re­duc­tions.

At present, the ATO is in­ves­ti­ga­tor, pros­e­cu­tor, judge, ap­peal judge and sen­tencer. Such enor­mous un­fet­tered power al­ways cre­ates power (not bribery) cor­rup­tion and there is no bet­ter ex­am­ple of this hap­pen­ing than the ATO.

My read­ers know this has been one of my key themes since mid-2016. I have worked with Ken Phillips of Self-Em­ployed Aus­tralia in sig­nif­i­cant parts of the cam­paign.

Some 20 months ago, I came to un­der­stand we had a se­ri­ous prob­lem in small busi­ness tax­a­tion and started writ­ing in May 2016 un­der the head­ing: “It’s time to help small busi­ness take on the tax of­fice”.

Un­like large com­pa­nies, the small busi­nessper­son does not have the money to go to court and find­ing lawyers to help is hard. The ATO has to­tal power.

The tax­a­tion com­mis­sioner, Chris Jor­dan, in a face-to-face meet­ing with me, ar­gued strongly against my con­tention that the all-em­brac­ing power had caused power cor­rup­tion in the ATO. Jor­dan gen­uinely be­lieved I was wrong and quite prop­erly asked me to show him real cases. I took up his chal­lenge and agreed to hold fire un­til I had a case. In that meet­ing I stated the ap­peal sys­tems were ef­fec­tively kan­ga­roo courts and made it clear what was re­quired was an in­de­pen­dent body where small busi­ness peo­ple could go to put their case without lawyers.

It must have power to over­rule the ATO. Once ATO peo­ple knew they faced ex­ter­nal scru­tiny they would need to ad­here to the law and not cre­ate their own law. I sug­gested the In­spec­tor-Gen­eral of Tax­a­tion should be given that power.

On Septem­ber 29, 2016 I took up the com­mis­sioner’s chal­lenge and pub­lished the first of many cases — the Dou­glass case where the hero of Port Hed­land, Rod Dou­glass, was treated ap­pallingly by the ATO.

To his credit, when he read my ex­pla­na­tion, Jor­dan backed down be­fore the courts, al­though his min­ions have come again on a dif­fer­ent front. But there have been so many more cases.

Per­haps the worst have been the ATO at­tacks on peo­ple who won ex­port awards. Busi­nesses tak­ing those awards face high risks — ask He­len Pe­taia. I in­vite you to read her story on our web­site dated Oc­to­ber 29 un­der the head­ing “Un­fair ATO a dan­ger­ous threat to in­no­va­tion”.

Global ac­count­ing gi­ant Deloitte has es­ti­mated the ATO’s ac­tions have caused her dam­ages of be­tween $13 mil­lion and $40m. Queens­land is fu­ri­ous, and I warned Mal­colm Turn­bull that when he goes to Bris­bane and talks about one of his favourite top­ics, in­no­va­tion, he should be pre­pared for a slow hand­clap. Had that case gone be­fore the In­spec­tor-Gen­eral of Tax­a­tion the power cor­rup­tion of the ATO would have been seen and Aus­tralia’s tax rev­enues boosted. In­stead Pe­taia was un­fairly sent to the wall.

It’s vi­tal for the Can­berra politi­cians, in­clud­ing those in the gov­ern­ment, to un­der­stand the in­cred­i­ble pow­ers of the ATO. The ATO un­der­takes as­sess­ments that go back three or four years and adds penal­ties and in­ter­est. Small busi­ness has no way of pay­ing. And these as­sess­ments by the ATO have in­cred­i­ble power in the debt mar­ket. Once a busi­ness gets a huge as­sess­ment, it can’t over­turn it and it ranks above all other debts, so un­less it has other as­sets, the busi­ness has no choice but to close.

When a credit bureau learns of an un­paid ATO as­sess­ment, that busi­ness will be de­stroyed — it’s the atomic bomb.

If the busi­ness gen­uinely owes the tax I have no prob­lem. But time and again the ATO ver­sion of the law is con­tro­ver­sial, to say the least, and is of­ten sim­ply wrong. That’s what hap­pens in power cor­rup­tion. I am not op­posed to the ATO be­ing given the atom bomb pro­vided the small en­ter­prise can first put its case to the In­spec­tor-Gen­eral of Tax­a­tion, who will make the fi­nal de­ci­sion. That will re­quire new pow­ers of the In­spec­tor­Gen­eral. If the ATO merely “con­sults”, show­ing the In­spec­tor-Gen­eral the re­sults of a kan­ga­roo court hear­ing, and is then al­lowed to de­stroy the busi­ness, the com­mu­nity back­lash will be se­vere.

O’Dwyer is on the right track but she must fin­ish the task. If she does, Aus­tralia and its con­fi­dence in the tax sys­tem will be greatly en­hanced.

Sub­mis­sions on the draft leg­is­la­tion close on Fe­bru­ary 9.

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