Tax office faces accusations of abuse of power

Australian Broadcasting Corporation
Broadcast: 09/04/2012
Reporter: Peta Carlyon

A whistle blower inside the ATO says it has abused its power and wasted money in a crackdown on highly wealthy people.

TRACY BOWDEN, PRESENTER: The Australian Tax Office has been accused of abusing its power and squandering taxpayers’ money on futile court cases designed simply to chase revenue rather than enforce the law. The claims are made by a group of Tax Office staff who raise a raft of concerns about the tactics used by the ATO in its crackdown on so-called high wealth individuals. The whistleblowers say that instead of acting on their complaints, the Tax Office turned its sights on them. PETA CARLYON has this exclusive report.

PETA CARLYON, REPORTER: As business and political leaders were meeting in Canberra for last year’s tax forum, in Melbourne a senior auditor from the Australian Tax Office was contemplating some serious issues of her own. Serene Teffaha had been at the ATO for eight years when the Tax Office bolstered its crackdown on so-called high wealth individuals or businesses worth between $100 and $250 million a year. Her job was to assess taxpayer objections to the scheme. It wasn’t long before alarm bells sounded.

SERENE TEFFAHA: We observed that things like procedural fairness, natural justice, were not being appropriately delivered. Furthermore, we felt that our area wasn’t being appropriately resourced to deal with these very complicated objections.

PETA CARLYON: At the time, the ATO was pursuing scores of cases through the scheme worth an estimated $490 million.

SERENE TEFFAHA: Often what you have are cases being driven through that are not actually looking at the highest risk to the Tax Office, just simply following through to try and achieve the revenue targets.

PETA CARLYON: Serene Teffaha raised her concerns with her employers, but she says they were ignored. Eventually, she and five colleagues made a complaint under federal whistleblower protection laws. The complaint, obtained by 7.30, claimed a lack of planning in dealing with taxpayer objections; inadequate resourcing and inexperienced staff; an attitude that encouraged shortcuts and a failure to properly respond to taxpayer queries about the lawfulness of the cases against them.

SERENE TEFFAHA: We had, perhaps foolishly back then, assumed that if we engaged the whistleblower reporting processes that we would actually get a fair hearing.

PETA CARLYON: In a writ lodged here in the Federal Magistrates Court in Melbourne, Serene Teffaha alleges that after the whistleblower complaint was lodged, the Australian Tax Office turned on her. She claims she was singled out from her colleagues and falsely accused of being a bully with suicidal tendencies. She says private detectives were hired to investigate her and her future job prospects were threatened.

SERENE TEFFAHA: It’s been completely paralysing for me because of the fact that they’re able to systematically wage these types of behaviours and actions against me and wage these kinds of actions against me with no appropriate accountability for their behaviour. I felt that I’d been forced to actually attempt to make these individuals, these senior officials within the ATO accountable through actually going to court.

PETA CARLYON: The concerns within the complaint, including the need for greater regulation of the ATO, are mirrored in a public submission to the tax forum by Australia’s Inspector-General of Taxation Ali Noroozi.

ALI NOROOZI, INSPECTOR-GENERAL OF TAXATION: The tax forum provided me with the opportunity to basically look at a number of reviews we had done.

PETA CARLYON: Ali Noroozi has also written an extensive review of the high wealth individuals scheme. He’s forbidden from detailing the review’s contents until the Federal Government chooses to release it. But he will say the ATO has been conspicuously unsuccessful in the higher courts.

ALI NOROOZI: The Tax Office has really not won many cases since around the middle of 2008. And I think they have not really won any case in the High Court involving a taxpayer from around the middle of 2008. … I think it’s entirely appropriate that the Tax Office has a litigation program. What I’m saying is that it needs to be appropriately managed so that really those cases that are necessary to be litigated and only those end up in the courts.

PETA CARLYON: Targeting high wealth individuals and businesses is not a new approach for the ATO. It follows the highly publicised Operation Wickenby. Backed by the Australian Federal Police, that project was geared to go after some big fish, including actor Paul Hogan, who’s been fighting the Tax Office for years.

PAUL HOGAN, ACTOR: If I was a tax evader, which I’m not, I must be the dumbest one in the world.

PETA CARLYON: The ATO hails Wickenby a success, but figures show out of almost 3,000 audits and reviews of taxpayers, only 22 taxpayers have been convicted.

One of Wickenby’s targets was Gold Coast-based entrepreneur Ron Pattenden. He was first tapped on the shoulder for an ATO audit in 2004 after restructuring his insurance underwriting company and shifting it to Vanuatu on the advice of his accountant.

RON PATTENDEN, ENTREPRENEUR: They’ve looked at every aspect of my financial dealings and the company dealings and they’ve come up with nothing.

PETA CARLYON: Vanuatu is one of several tax havens or hot spots targeted by the ATO and recent figures suggest its crackdown has worked. The flow of funds from Australia to Vanuatu has halved in the past five financial years. Even so, Ron Pattenden says he wasn’t prepared for the tax bill that came after being audited.

RON PATTENDEN: They asserted $6 million, and then very quickly that $6 million, with their penalties and interest, went up by about a million a minute to just under $15 million.

PETA CARLYON: After an eight-year legal battle the Federal Court found Ron Pattenden had paid his taxes and had no case to answer. The ATO’s case against him was thrown out, but he says he’s still out of pocket.

RON PATTENDEN: I was forced to pay $1.8 million in tax that I don’t owe and that would’ve been 3.5 years ago, so I’m still paying interest on that money I loaned from the bank to be able to pay that. So, financially, probably close to $4 million out of my wallet at the moment.

PETA CARLYON: The ATO estimates more than $2.3 billion was owed in tax from high wealth individuals or companies between 2007 and 2011. Of that, $820 million has been collected while more than $1.5 billion is at issue. ATO figures show 202 cases were heard in the Federal Court in the last financial year.

SERENE TEFFAHA: When the ATO loses, we’ve actually expended taxpayer funds throughout this process to litigate these matters, but we ultimately lose.

PETA CARLYON: The ATO declined to be interviewed on camera about Serene Teffaha’s claims and said it cannot comment on individual employee matters or circumstances, particularly those before the courts. It would not comment on Ron Pattenden’s case either, citing privacy concerns. Ron Pattenden, though, wants the story of his court battles told. Like the highly publicised Paul Hogan case, he was hit with an ATO travel ban under operation Wickenby which stopped him leaving the country.

RON PATTENDEN: It’s a very heart-wrenching ordeal because it’s just like the curtain’s come down.

PETA CARLYON: Mr Pattenden fought the travel ban and won. Despite that, two days later he was detained at Brisbane Airport by Federal Police on the orders of the ATO as he was preparing to return home to New Zealand.

RON PATTENDEN: Two very burly federal police officers came along and told me that the Tax Office had issued a second travel ban.

PETA CARLYON: The second ban was eventually found to be unlawful and resulted in Federal Court Justice John Logan warning he could impose a prison term on the tax officials involved.

RON PATTENDEN: They are allowed to take any amount of time that they wish to take to wear down somebody from the public like me. Years and years and years, they can take and thousands and thousands and thousands of dollars to defend yourself.

PETA CARLYON: Serene Teffaha has written to the Federal Government calling for a review of the ATO’s governance and accountability, but is yet to receive a response.

SERENE TEFFAHA: The unchecked and unfettered powers of the ATO I believe are unparalleled. They might not be physically hurting you directly, but they’re most certainly psychologically and mentally waging a horrific war.

TRACY BOWDEN: PETA CARLYON with that report.

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