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ATO relies on ‘gossip’ to manufacture tax debt, defiling the rule of law

Sunday, May 02, 2021

An April 2021 High Court outcome demonstrates that the ATO has chucked the rule of law into the bin. The ATO asserts that it can manufacture a tax debt based on gossip.

Between 2012 and 2015, criminals defrauded the ATO of at least $2.45 billion in GST in the ‘gold scam’. In happened arguably because of ATO incompetence. We’ve explained this before.

In our view, to cover its tracks, the ATO is attacking innocent parties.

Around 2016 the ATO withheld GST refunds of around $209 million due to a large gold refiner. The ATO knew that the big refiner was not part of the GST gold scam. The ATO won in the Administrative Appeals Tribunal. The basis of the ATO win 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 and was ‘hidden’ amongst 44,000 pages of ‘evidence.’ The persons were never questioned.

The company appealed to the Full Bench of the Federal Court and won (November 2020). 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 has the right and legal capacity to 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.

Thank goodness the High Court rejected this ATO application. The company is not guilty. Gossip does not rule.

But consider further. The ATO has spent in excess of $40 million on legal fees pushing this case. 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.

This cannot be allowed to continue. Justice must prevail. We need action if tax justice is to be delivered in Australia. The case for reforming the ATO just keeps getting stronger.

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