What the Australian Tax Office can do and how it differs to other agencies
The Australian Tax Office (ATO) has been described as one of the most powerful institutions in the country.
It has extraordinary powers more akin to police and law enforcement agencies. And when it makes mistakes, it can destroy small businesses and livelihoods.
A joint investigation by Four Corners and Fairfax Media has exposed disturbing behaviour within the Tax Office, sparking calls for more oversight and accountability.
But what exactly can the Tax Office do — and how does it differ to other Commonwealth agencies?
If the ATO comes knocking, you have to prove your innocence
When someone runs into trouble with the law, we’re told they’re innocent until proven guilty.
That’s not how it works with the Tax Office. When the ATO accuses you of tax fraud, it’s up to you to prove your innocence.
That means when a debt notice is issued after an audit, action can be taken against you even if continue to maintain you’ve done nothing wrong.
Three years ago, a parliamentary committee called for the onus of proof to be reversed.
It was worried about potential abuses of power including cowboy auditors taking action against companies without a high standard of evidence.
The recommendation was rejected by the Federal Government.
For more than a decade, the Tax Office has been accused of operating as an investigator, prosecutor, judge, jury and the financial hangman all in one.
If you run a small business and are hit with a debt notice, your only option is in-house mediation. So you need to appeal with the same audit team who issued the debt.
If you can’t convince the auditor to change their mind, then you need to pay half the alleged debt to continue fighting your case with that team.
That means the ATO can take action against you — potentially seizing your assets — before you’ve had the chance to prove your innocence with external oversight.
If you run a large business — with an annual turnover of greater than $250 million — you can request a review by someone within the ATO who wasn’t involved in the initial audit.
In May 2013 then-shadow treasurer Joe Hockey raised concerns about accountability and flagged a shake-up of the ATO.
He floated the idea of splitting the ATO in two — separating its administrative and policing functions — to ensure aggressive tactics were kept in check. It never happened.
A subsequent parliamentary inquiry called for a second commissioner to be created within the ATO that could deal with appeals and complaints.
The Inspector-General of Taxation Ali Naroozi has repeatedly called for this to happen. The ATO has resisted change and the Government has ruled it out.
The ATO can search your property without a warrant
The ATO is given strong legislative powers to ensure it can fight tax evasion and fraud.
The Tax Office has the power to forcibly enter a property and search for documents without a warrant.
If tax officials want to take items away from the property, they need to be accompanied by police with a warrant.
Documents can be inspected and secured if tax agents believe they may be tampered with.
“When using our access powers, we are authorised to enter and remain on any land, premises or place and have full and free access to books, documents, goods or other property,” an ATO statement says.
Last financial year, the ATO used these this power 37 times. On 10 occasions, properties were searched without owners being notified.
The ATO can divert your income … to itself
The Tax Office can hit small businesses with garnishee notices.
This power allows the ATO to instruct a bank to immediately divert income sent to a small business to the Tax Office.
That money is then used to pay off the debt. It can be taken as a lump sum or a percentage of income.
In some cases, a small business owner might not know this has been done until they find themselves unable to pay staff or contractors.
It can be done while small business owners continue to appeal their case.
This is a heavy-handed tactic and is supposed to be used a measure of last resort by the ATO.
If the ATO believes a small business owner is not paying tax, then they can be hit with a financial penalty equal to the amount owed.
A “director penalty notice” enables to ATO to start legal proceedings, but it can start collecting the penalty even without a notice.
One way to do that is to start withholding personal income tax returns.
The ATO’s watchdog has 30 people to oversee a 20,000-strong workforce
The High Court and other court jurisdictions can overrule Tax Office decisions, although legal action is expensive and many small businesses cannot afford it.
The ATO is also answerable to Federal Parliament and appears before Senate estimates and parliamentary inquiries.
It is also subject to reviews by the Commonwealth Ombudsman and the National Audit Office.
The Inspector-General of Taxation acts as a watchdog, but he has 30 staff at his disposal to monitor an ATO workforce of 20,000 people.
The Inspector-General’s decisions are not binding, unlike watchdogs in other jurisdictions.