The taxman is tougher on small business than big business, of that there is no doubt. Here are two short stories: one of Susan and Greg, a couple from Queensland who lost their house after running a cafe for 16 years, and another of a Bakers Delight franchisee who decided to fight but now faces the spectre of picking up the bill for a big city law firm hired by the Tax Office as well as his own costs.
The Australian Tax Office has just introduced a pilot plan which is a big worry. It has begun to outsource its debt recovery to external law firms so those who owe money will also pick up a hefty legal bill.
We are talking about the case of a Bakers Delight franchisee who declined to be named but has been doing it tough. He has just managed to keep his head above water but has built up a substantial tax debt.
The baker wants to honour the debt and enter a payment plan. Unfortunately, his profit is not sufficient to meet high monthly tax repayments.
His lawyer, Tania Waterhouse of Waterhouse Lawyers, says in these situations the ATO will consider using the home as security for the debt provided there is sufficient equity.
“In the past, a small team at the ATO has managed the putting into place of the security arrangement and the payment proposal. I have always found the debt securities team to be very approachable and helpful in getting together a payment plan.
“All of this has now changed under a pilot plan introduced a few weeks ago,” says Waterhouse. “The ATO has decided to outsource the security arrangements to an external law firm. In the baker’s case they are using Ebsworth in Brisbane.”
Like most city law firms, Ebsworth does not come cheap and it is difficult to see the justification in outsourcing to firms which charge $300 to $600 an hour when the Tax Office could handle security arrangements in-house.
“It cannot possibly be a cost saving measure because the ATO securities case officer still has to manage the process between the taxpayer and the law firm,” says Tania Waterhouse.
“However the ultimate insult is that the taxpayer is expected to pay for the services of the law firm. I have been told that this is a condition of the ATO agreeing to enter into a payment plan. So the taxpayer has no choice but to agree.”
Meanwhile big business … the respective lawyers refer obligingly to each other as “learned friends” while they bow obsequiously before the judge and pepper the day with their urbane witticisms.
The next question is how much the taxpayer is expected to pay. The rules for law firms are clear; they must always provide a costs agreement to the client so that the client knows how much they are paying, the hourly rate, and the approximate cost.
“In this instance the client is the ATO, not the taxpayer. So the taxpayer has no rights of knowing expected costs or of disputing wasted time.
“I was advised by the ATO case officer that the cost would be in the vicinity of $1500. However, he was not sure. I am sure that the costs will be higher than this and expect the legal fees to be closer to $3000.
Why is the ATO doing this? If they have negotiated a $1500 fee it makes it even worse as the ATO case officer must still liaise with both the taxpayer and the law firm – and a further cost to taxpayers who have legal representation is that their lawyers must spend additional time complying with the requests from the law firm. A further cost.
The ATO has come up with madcap schemes in the past, such as ECAP, a scheme to have Big Four auditors – the architects of global tax avoidance – monitor the compliance of their owns clients. Foxes in charge of the henhouse. Let’s hope this latest legal outsourcing plan goes the same way as ECAP.
The second story is best told by the victims, Susan and Greg Leaver, who spent $10,000 on lawyers in 2010 – after successfully running a cafe for 16 years – and lost everything.
Two years ago we gave our only asset, our modest family home to the ATO as payment for a giant tax bill which accumulated through no fault of our own, due to a sudden glut of cafes in our town.
We had employed and trained many young local people in hospitality skills over 16 years and created a vibrant community meeting place where families and single people could come listen to local live music, have a drink or a meal in a safe and pleasant environment.
Big business plays out its games with the Tax Office in a far more genteel environment where phalanxes of lawyers and accountants – and of course their big corporate clients – treated each other with bonhomie as they feast on the taxpayer teat.
We paved the way for other small cafes and bars by our years of 5am to midnight days and commitment to our community. We had no holiday pay, no paid long service leave, no savings no other income and now we are renting again in our mid fifties.
We raised a beautiful and talented daughter who is now a journalist but financially we have nothing but a small share in a small bar! The ATO are still nipping our heels to get more money but we haven’t been able to pay our creditors and tax accountant so we are trying to hang in there while we try to pay bits and pieces back. So naturally I we are very upset to hear these big players who pay no tax get away with it!
Meanwhile big business plays out its games with the Tax Office in a far more genteel environment where phalanxes of lawyers and accountants – and of course their big corporate clients – treated each other with bonhomie as they feast on the taxpayer teat.
Even when the world’s biggest companies push the limit too far, as Chevron did in the above story (borrowing from itself at 1.2 per cent and on-lending to its Australian subsidiary at 9 per cent to skive out of tax), the matter ends up in court and hits taxpayers twice – court costs and ATO costs.
When they get to court, the respective lawyers refer obligingly to each other as “learned friends” while they bow obsequiously before the judge and pepper the day with their urbane witticisms.
Routinely they pull off multimillion dollar scams, sometimes billion-dollar scams – and go unpunished, without prosecution, such as this from Origin Energy.
The ATO is just about to be clobbered by the ABC’s Four Corners tomorrow night for its treatment of small business. Ahead of the show, the Federal Police raided the home of an ATO whistleblower last week as the agency goes into damage control.
The powers of the ATO are substantial and susceptible to abuse. This reporter has been privy to a number of claims of abuse. It should be said though that the tendency to treat the small differently to the big is not a tendency contained to the Tax Office. It is an entrenched feature of government globally.
Corporate regulators ping the small fry and mostly let the big fish swim free. The banking Royal Commission is hearing myriad tales of unfair treatment of small customers; and the protection of bankers from prosecution is de riguer.
Meanwhile, as PAYG workers pay their full tax obligations with their every pay-check, foreign workers by the thousand are imported, pick up ABNs in a day, work in unregulated labour markets and return home two years later, leaving the ATO with their tax debts.