Fairer dealings at the ATO, especially for small business
ATO Second Commissioner Andrew Mills says reforms to the tax office’s dispute processes signal its commitment to fairness.
In Brief
- ATO Second Commissioner Andrew Mills says the ATO has listened to criticisms and is promoting a “culture of fairness” in how it deals with taxpayers, especially SMEs.
- The recently implemented Independent Review for Small Business allows small business owners who have been audited by the ATO to ask for a review of the outcome before the assessment is finalised.
- The ATO has evolved its dispute resolution process to put distance between the assessment and appeals sections within the tax office.
Story Garry Shilson-Josling
Photos Nic Walker
The Australian Taxation Office (ATO) has not only listened to suggestions about how to improve its handling of disputes, it’s implemented almost all of them, the agency’s second commissioner Andrew Mills says. The ATO’s aim now is to promote what he calls a “culture of fairness”.
It’s understandable that Mills would be keen to return fire. The agency has taken some direct hits on the public relations battlefield over the past few years.
There was the Cranston Affair that erupted in May 2017, when the ATO commissioner, Chris Jordan, was on leave and Mills was in the hot seat as acting commissioner. Former ATO deputy commissioner Michael Cranston now faces charges of abusing his office to obtain information after his son, Adam, was allegedly involved in a conspiracy in which subsidiaries of Plutus Payroll were used to skim off millions of dollars owed to the ATO.
There was the ABC Four Corners program in February 2018, titled “Mongrel Bunch of Bastards”, that portrayed the ATO as heartless and aggressive in its dealings with small business.
This all follows the public relations fallout from major IT outages in December 2016 and July 2017.
Mills says that if trust in the tax system falls then so does compliance. He says the level of trust is ultimately determined by the quality of the everyday experiences of people as they interact with the ATO, and that quality can in turn be gauged by their perception of fairness in disputes.
“I don’t dispute what the inspector-general found back then, but what we’ve done since that time is implement his recommendations.”
Australia’s former inspector-general of taxation, Ali Noroozi, was a notable critic of inadequate separation between decision-makers and staff reviewing disputed decisions, something he believed eroded trust. In an interview with Acuity shortly before his second five-year term ended in November 2018, he continued his long-running campaign for greater separation. The latest report by the Inspector-General of Taxation office on dispute handling, published in 2015, found the distance between assessors and reviewers was smaller in the ATO than in any comparable jurisdictions it had studied.
“And three years ago that would have been the case,” Mills admits. “I don’t dispute what the inspector-general found back then, but what we’ve done since that time is implement his recommendations.
“There’s been quite a number of recommendations, and we’ve implemented nearly every single one,” Mills says, and he wants that to be more widely appreciated.
In a paper prepared for the Westminster Tax Discussion Group in November 2018, Mills listed the recommendations about dispute management from both the inspector-general and a parliamentary committee. He put a green tick next to every one of them. They cover independent appeals, a triage system to streamline processing, separation between auditors and objection officers, procedures for alternative dispute resolution such as mediation, and specialised staff training.
The only notable exception was that no new second commissioner position was established to head a new appeals area, something that would have required legislation. Even then, Mills believes the work-around solution, quarantining independent reviews in his own section of the ATO, does the job.
The evolution of ATO dispute handling
Big changes were already under way when Mills made the move to the ATO from tax advisory firm Greenwood & Freehills in 2014. An independent review process for large taxpayer audits was set up in July 2013 in a part of the ATO separate from where the audit was done. This evolution continued in December 2013 with the establishment of a dedicated Review and Dispute Resolution business line. Mills began as second commissioner – Law Design and Practice in March 2014, just in time to begin the job of overseeing the new group.
Handling of objections has been shifted progressively to the Review and Dispute Resolution line, completing the separation of disputes from the section headed by the Second Commissioner, Client Engagement, where assessments are made.
The ATO itself drove this transformation without having to be forced by the new legislation recommended by the inspector-general of taxation, something Mills is both keen and proud to point out.
“So the government at the time decided that they didn’t want to make legislative change, but we’ve picked up the recommendations about separation,” he says.
Mills is wary of putting too much distance between the assessment and appeals functions, arguing instead for a happy medium that allows feedback to improve future decisions.
By 2015, most objections were being handled within the Review and Dispute Resolution line, but there has been one notable straggler. Objections against decisions to cancel Australian Business Numbers, an issue figuring prominently in the Four Corners program, only came across to the Review and Dispute Resolution line in July 2018.
“Prior to that we [the Law Design and Practice section he heads] had everything but that, so it’s just one extra little thing,” Mills explains.
One small-business owner featured on the Four Corners program, Annette Pike, described the cancellation of her contractors’ ABNs on 9 November 2017 as “our terrorist attack from the ATO”.
“We have to be ever-vigilant on making sure that we are… always treating people fairly, always treating them as if they are to be trusted in the first instance, because trust is a two-way thing.”
Independent review of SME audit assessments
A program called Independent Review for Small Business is another change coming late in the game. It gives taxpayers the chance to order a review of the outcome of an audit before the assessment is finalised. The decision will be binding on the assessor, but the taxpayer will retain the right to lodge a formal objection.
The Independent Review program has been available since 2013 to businesses with turnover greater than A$250 million. A pilot program for selected small businesses was extended nationally from mid October 2018.
With the number of small businesses in Australia approaching 4 million, and about 3% (more than 100,000) audited annually, this has the potential to help small businesses that want to challenge an adverse audit before the ATO finalises the assessment and demands payment.
Mills says the process is seen as fair and allows the small business taxpayer to engage in a dialogue with the ATO to ensure the right decision is made. “So we weren’t then going to end up in protracted objections and appeals and litigation down the track,” he says.
Mills says building trust in this way will be vital to ensuring compliance with the tax system – trust that the ATO will treat people fairly, and trust that others are being required to do the right thing as well.
“If we’re not doing that, we’re certainly not contributing to the long-term health of the system either,” he says.
Mills says he’s keenly aware that the process of change must be ongoing, and it’s clear he’s referring not just to the ATO’s structure but also to its culture.
“We have to be ever-vigilant on making sure that we are… always treating people fairly, always treating them as if they are to be trusted in the first instance, because trust is a two-way thing,” he says.
That expectation has been enshrined in the Taxpayers’ Charter since it was introduced in July 1997. It requires the ATO to “accept the information you give us is complete and accurate unless we have reason to think otherwise”. One example may be contractors for Annette Pike’s business, OutScribe, who say their ABNs were cancelled because the ATO would not believe they were working as contractors and not as employees.
Mills concedes that some staff are still measuring their performance by the volume of cases they can churn through, and he wants to change the way they see their jobs. “We’re more interested in making sure we get it right,” he says.
