More protection for taxpayers who win against the ATO?

THE TAXPAYERS Australia organisation has called for protection for taxpayers who find themselves embroiled in disputes with the ATO – especially where the ATO position ultimately turns out to be without foundation.

The call comes on the back of Taxpayer’s Australia’s role in assisting Gary Kurzer, the New South Wales man whose story was featured prominently in a recent edition of the Sydney Morning Herald.

Mr Kurzer spent eight years fighting the ATO against claims that he had underpaid tax on the disposal of properties he once owned on the central NSW coast. 

After initially claiming that he owed more than $200,000 in GST and penalties, plus capital gains tax on profits of over $600,000, the ATO was finally forced to concede that Mr Kurzer owed just $8,000.

Mark Chapman, head of tax issues for Taxpayers Australia, said it was only as a result of a dogged campaign by Mr Kurzer that the ATO finally had to concede a trail of basic errors and misjudgements in the handling of his case.

Along the way, the mental stress and monetary cost of fighting the case caused Mr Kurzer to lose his relationship, his health, his business and his house.  In September this year, Mr Kurzer is taking the ATO to the Federal Court alleging negligence, arguing that the ATO owes taxpayers a duty of care.

Mr Chapman said while Mr Kurzer’s case was extreme, Taxpayers Australia encountered many taxpayers who had faced similar battles. 

Mr Chapman warned that unlike most other situations, “it’s a case of guilty until proven innocent when dealing with the ATO” and if the taxpayer actually is innocent, they can face an uphill struggle in getting their case heard.

A recent report from the Inspector-General of Taxation – the Review into the Australian Taxation Office’s administration of penalties on July 8, 2014 – highlighted that the average cost of fighting a tax case before the Administrative Appeals Tribunal is more than $6,000, and that is a sum that has to be paid whether or not the taxpayer wins.

“In other words, if the taxpayer fights the ATO and wins, they have no recourse back to the ATO to claim the costs they have incurred in fighting the case,” Mr Chapman said.

“Nor do they have any mechanism for claiming compensation if the ATO has not behaved in accordance with the law and its own Taxpayers Charter. In many cases, the toll on the taxpayer in terms of stress and fatigue can be just as acute as the direct monetary impact.

“And, of course, if you’re a small business or an individual, the kinds of costs you might be looking at to fight the ATO are simply unaffordable and you might be left with only one option; pay up.”

The Inspector-General’s report highlighting that 35 percent of penalties imposed by the ATO in the three years to 2012-13 were later reversed on objection, typically because of ATO mistakes, this figure rises to 46 percent in the 2012-13 year.

Mr Chapman said Taxpayers Australia believed the ATO did not have a good track record at getting it right.

Of those penalties, he said, 51 percent were imposed on the smallest businesses and only 19 percent on the largest), which he called “clearly disproportionate and suggests that many of these small businesses have neither the will nor the resources to take on the ATO”.

As a result of the Inspector-General’s report, the ATO has agreed to his recommendation that penalties should not be payable until the matters under dispute are resolved, and also that the ATO should pay interest on penalties which are not sustained.

“This is a start, but it isn’t enough,” Mr Chapman said of Taxpayers Australia’s view.

“A legally binding obligation needs to be imposed on the Commissioner of Taxation, backed up by a statutory compensation mechanism, to ensure that the Commissioner follows the tax law and his own administrative policies and procedures and where he doesn’t do so, he should be legally obliged to provide compensation to taxpayers who have suffered as a result,” Mr Chapman said.

“In addition, where taxpayers fight and win a case against the ATO, they should have the opportunity to apply for their reasonable costs to be paid by the ATO, in just the same way as occurs in other legal actions.”

www.taxpayer.com.au

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