Battler for small business could be next ATO commissioner
Tom McIlroy Aug 21, 2023 – 5.00am
A program designed to level the playing field in costly legal disputes between the Tax Office and small businesses needs better guardrails on funding agreements, the independent watchdog says.
The $30 million small-business litigation funding scheme was established by the Morrison government, recognising that businesses fighting the ATO at the Administrative Appeals Tribunal are at a major disadvantage in relation to legal bills and know-how of the law.
Tax Inspector-General Karen Payne: “It doesn’t seem fair that at the start of the litigation process, you don’t know how much of your cost you will have to fund for yourself.” Brook Mitchell Inspector-General of Taxation and Tax Ombudsman Karen Payne reviewed unresolved complaints related to the program’s operations, noting that taxpayers fighting an assessment carry the burden and onus of proof, as well as tough requirements for evidence. They also have to pay market prices for legal representation, where the ATO can access government rates.
Ms Payne told The Australian Financial Review businesses and the ATO are spending considerable time, expense and effort to clarify costs claimed under the program.
Her report says many disputes would be less complicated if public guidance and other materials were more consistent with the program’s intent and better explained.
“It doesn’t seem fair that at the start of the litigation process, you don’t know how much of your cost you will have to fund for yourself, versus how much you’ll be reimbursed,” she said.
“What we found was that people got some way into their dispute and then suddenly, the ATO says, ‘Now we want all this documentation from the legal representative because we don’t believe the claims’ and ‘We’re now not going to fund these amounts because we think reasonable costs looks like this.’” If the ATO engages external legal representation as part of a dispute in the AAT’s small business taxation division, it will cover reasonable costs for an equivalent level of legal representation.
Costs covered can include solicitors’ fees to the same level as that retained by the taxation commissioner. Since 2019, 65 small businesses have received funding.
Treasurer Jim Chalmers has ordered a merit-based selection process. Tax Office second commissioner Jeremy Hirschhorn and OECD tax director David Bradbury are other possible candidates.
The ATO provided an overarching statement in response to Ms Payne’s recommendations, saying it is committed to resolving disputes as soon as possible and at minimal costs to all parties.
“This includes ensuring the integrity of the small-business litigation program and guarding against any potential misuse of taxpayer funds.
“The ATO has noted the IGTO’s recommendations and intends to consult with stakeholders, including with IGTO, on the administration of the program going forward. The ATO remains committed to supporting unrepresented small business litigants in tax disputes in the AAT or its replacement.”
Ms Payne said she was concerned the ATO could be delaying a meaningful response by promising more consultation.
The ATO did not initially present some documents relevant to the ombudsman’s investigation. Ms Payne said recommendations from the robo-debt royal commission requiring full assistance by agencies being investigated could be widened.
“It seems to me unreasonable to expect us to in all cases to compel the production of information. Why should we be having a fight with the Tax Office about trying to get the information that we need to investigate somebody’s complaint?” she said.
There is also uncertainty about the small-business funding program going forward. Labor is abolishing the AAT and is yet to say where the program will sit.
