Taxpayers may get a bill of rights, better compensation schemes post review
Australian taxpayers could get a bill of rights, and better compensation schemes if they have been wronged by the Australian Taxation Office, following a new review by the Inspector-General of Taxation.
On Monday, Ali Noroozi launched his review examining whether there’s scope to introduce a taxpayer bill of rights, similar to one existing in other countries like the United States.
There are limited rights of internal review and limited rights to seek external review of ATO decisions
Ali Noroozi, Inspector-General of Taxation
It comes as there’s heightened concerns about taxpayers’ rights in cross-border information exchanges between revenue authorities, particularly in light of recent measures to stop multinational profit shifting.
Mr Noroozi said currently there were “limited rights of internal review and limited rights to seek external review of ATO decisions”.
The ATO decides how much taxpayers get, and if they get any compensation at all, if the agency has wronged them.
The ATO’s own figures show that the number of successful compensation claims has decreased, from 162 in 2011-12, to 79 in 2013–14, while the total amount of compensation paid has increased, from $773,857 in 2011–12, to $841,754 in 2013–14.
Mr Noroozi said his review was launched after concerns were raised with the adequacy of the Scheme for Compensation for Detriment caused by Defective Administration (CDDA Scheme) – a scheme applying to all Government departments including the ATO – as a means of protecting taxpayers.
“Stakeholders have expressed concern with the lack of transparency and independence as the ATO itself is the decision maker with respect to both the occurrence of defective administration and any amount of compensation applicable,” Mr Noroozi said.
A parliamentary inquiry last year heard that small business taxpayers have been intimidated, made bankrupt and some suffered mental breakdowns and contemplated suicide after drawn-out disputes with the Tax Office.
Mr Noroozi said while there was strong support for a “robust and transparent mechanism through which taxpayers may be compensated for losses flowing from breaches of their rights or protections by the ATO, such mechanisms need to consider the potential litigious environment that may be created”.
This could result in delays and related costs as well as an impact on government revenue.
“In this respect, the USA experience may be instructive where the number of taxpayer cases to recover damages caused by IRS officer actions has declined from an initial spike when legislation providing such a right was introduced,” Mr Noroozi said.
He said the current Taxpayers’ Charter in Australia referred to “rights” and “obligations”, but “are more accurately described as a set of mutual expectations.
“Stakeholders have raised concerns that the charter is insufficient in protecting the rights of taxpayers and that ATO officers do not always adhere to its principles,” he said, but added that in recent years the ATO had undertaken improvements to increase its engagement with taxpayers and a more proactive approach to resolving disputes.
“This review is timely in light of recent international developments, which are moving towards greater recognition of taxpayer protections, and will examine existing rights as well as alternatives,” Mr Noroozi said.
An emerging issue for revenue agencies and taxpayers was a protection of taxpayers’ rights in cross-border information exchanges between revenue authorities, particularly in light of recent measures to address Base Erosion and Profit Shifting (BEPS).
“We will also address taxpayers’ rights in the context of cross-border information exchanges,” he said.
Clayton Utz tax partner Nov Tadmore said: “it is not good for the system that small business taxpayer had such concerns, yet on the other hand, the ATO has put itself through a positive and real reinvention in the past three years”. A bill of rights could entrench and formalise what’s happening now in practice, he said.
