Small business taxpayers have been intimidated, made bankrupt and some have suffered mental breakdowns and contemplated suicide after drawn-out disputes with the Tax Office, according to evidence given to a parliamentary inquiry.
The inquiry into tax disputes has heard from dozens of small business owners and tax advisers across the nation that say despite Tax Commissioner Chris Jordan's efforts to bring in cultural change, the Tax Office lacks staff with technical expertise and retains a "revenue bias". Junior officers try and please their superiors by banking revenue, rather than listening to genuine complaints by individuals and small businesses that the assessment issued was wrong.
The criticisms come as the Tax Office has just lost 3000 staff due to Abbott government budget cuts, with another 1700 to follow in coming years. Hundreds of senior officers, including from the audit team, have exited, further raising concerns that the Tax Office lacks qualified staff.
The inquiry has held a series of hearings across the nation over the past few months. In one in August, the Law Institute of Victoria said the ATO's independent review process was as democratic as the North Korean dictatorship.
The inquiry heard that while big business taxpayers have the time and money to fight tax bills in court, small business were made to comply by being threatened with garnishee notices requiring them to make immediate debt payments to the Tax Office, even while those debts are the subject of a dispute.
"For a small business, that can be quite an unpleasant experience, to say the least, because they may face insolvency," said Clayton Utz tax partner Niv Tadmore. Others said the taxpayer would rather settle an incorrect assessment than face going bankrupt.
Tax lawyer David Hughes said there were still too many ATO officers that were zealots "who seem to approach their duties as auditors or objection officers or debt collectors". He said one client spent eight years in court and was still roughly $1 million out of pocket by the time the legal fees had been reimbursed. In most cases taxpayers were not entitled to compensation.
Grahame Pilgrim was the subject of a $550,000 tax audit by the ATO between 2007 and 2010. The bill was later reduced to $96,000, but Mr Pilgrim spoke about the incident caused him a mental breakdown.
Another taxpayer, Joanne Hambrook, who had been a director of several companies that were issued assessments dating back 15 years – which were all incorrect and later amended – said her life had been "destroyed" by the Tax Office.
"I really want the Tax Office to be brought to account when they do something wrong – not only wrong in making a mistake, but if they knowingly persecute or prosecute or harass or intimidate a taxpayer to the point where it all seems to be a planned exercise to force you to give up your position," she told a hearing in Brisbane last month. "It has almost driven me crazy to be fighting the Tax Office from 2003."
In another hearing, well-known barrister John Hyde Page said the resolution of tax disputes did not result in "democratic" outcomes for taxpayers, especially individuals and small business.
Mr Page, who has previously represented clients under chase by the ATO's Project Wickenby, the taskforce that pursued Australian actor Paul Hogan, criticised the ATO's use of the Australian Crime Commission for "generic information gathering" rather than fighting organised crime.
He said only a fraction of tax arrangements by large business were successfully litigated because companies such as Chevron were able to devote resources to fighting the ATO. In comparison smaller taxpayers could not.
"If Chevron were a private individual, you would expect to see all of its assets being frozen and its bank accounts being garnished," he said.
"In general, large corporations do have access to better advice. By contrast, with private individuals there often is a bit more shabbiness, frankly, about their arrangements. I personally think it is appalling that somebody's treatment under the law should be materially affected by whether or not they can afford an expensive firm of lawyers to write them a letter of advice."
Tax adviser Richard Wytkin told the same hearing when a "pimple-faced auditor makes a silly decision", senior ATO officers would then follow it. "The commissioner seems to want to continue to support that view even when the outcome is extremely harsh," he said.
Currently large business taxpayers with over $250 million turnover can go to an independent review area within the Tax Office if there is a disputed assessment, but this has not been extended to the entire taxpayer community.
Treasurer Joe Hockey, when in opposition, had flagged the possibility of splitting up the Tax Office so that its policy and administrative functions were separate. The bulk of submissions and evidence to the hearing suggests creating a separate appeals area for all taxpayers, but suggest it remains with the ATO rather than creating a new agency.
One tax adviser speaking at a hearing earlier this year said criminals had more rights before the law. "If you are called before the police for a murder investigation, they do not have anything like the powers the Australian Taxation Office has," said tax lawyer and principal of Halperin & Co, Graeme Halperin.
He said the ATO would regularly issue a section 264 notice compelling taxpayers to attend an interview with the ATO. "You will have to answer questions on oath. You will not have a right to remain silent. Your legal representative has very limited powers to intervene in the questioning," he said.
Often the requests for information were onerous, dating back over several years, and did not take into account that small business people were running a business and did not keep records for everything.
The Tax Office welcomed the renewed focus by parliament on the management of tax disputes. A spokesman for the ATO said the agency was working to resolve issues faster and more fairly to ensure confidence in the tax system.
"The ATO's stance, strategy and capability is now focused on resolving disputes as early as possible, in a way that is efficient, respectful and fair," he said. "Resolving disputes early not only saves time and money for the taxpayer and the ATO, it also provides certainty for taxpayers and promotes productive relationships."
