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The ‘What’ and ‘Why’ of the ATO small business reform

Tuesday, March 26, 2019

We wrote yesterday to thank the many players involved in efforts to reform the ATO’s treatment of self-employed, small business people. Today we explain what that reform is and why it’s important.

The reform is the creation of the Small Business Tax Tribunal (SBTT) that started on 1 March. It’s a division within the Administrative Appeals Tribunal. There are two key documents to understand:

The importance is that for the first time there will be some balancing of the current massive power imbalance between the ATO and small business people.

The ATO wields total power over the self-employed in the processes of tax assessment, appeals and enforcement. The outcome is that the ATO effectively runs a kangaroo court system which, in our assessment, uses process and legal trickery. In doing this the ATO is unanswerable and unaccountable. This is the core reason for the abuse and mistreatment of small business people evidenced during 2018 in the media and in parliamentary and departmental inquiries and reports.

The Small Business Tax Tribunal is intended to (and should to some degree) ‘even out’ this power imbalance. Note, that there is no change to the legal obligations of people to pay tax or the right of the ATO to enforce those obligations.

The key important reform features are as follows:
  • The SBTT is external to, and independent of, the ATO.
  • Small business people can trigger a referral to the SBTT at any time in their dealings with the ATO.
  • The ATO will not enforce a debt while a matter is before the SBTT, except in extreme cases.
  • The ATO will not ordinarily use external lawyers. If they do use external lawyers, they will fund the small business for lawyers to the same amount as the value of the lawyers the ATO uses.
  • The SBTT will give a decision within 28 days of a hearing.
  • If the ATO appeals an SBTT decision to the Federal Court, the ATO will fund the small business person’s lawyers.
It is important to note that the SBTT has not been created by legislation. We hope that legislation will follow. But at this stage the ATO has agreed to this levelling of power. We have to take this as a mark of goodwill by the ATO and a genuine intention by it for fairer treatment of small business people.

There’s more to be done, however. The ATO can use internal lawyers without funding the small business person’s lawyers, thereby retaining a power advantage to them. But we’re moderately hopeful that this too might be addressed.

Here’s the practical reality of small tax disputes. The bulk of issues are factual. For example, is a claimed expense a genuine tax deduction? For the most part these can be sorted sensibly without lawyers in the SBTT. Lawyers too often get in the way of such practical investigations (apologies to our lawyer friends!) Often, of course, tax law can be complex and lawyers are needed. For example, when is someone ‘working for a result’? Here interpretation of legislation and case law is needed (unfortunately).

The importance of the SBTT is that:
  • It limits the use of lawyers.
  • Where lawyers are needed, the small business person will have equal representation.
As stated above, more is needed, but what has been achieved so far is a big step to a fairer system and one that can be seen to be fair.

Tomorrow we’ll inform you of a major development on the ABN and contractor definition front.

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