Australian Tax Office accused of muzzling complaints to keep errors secret

Taxpayers, tax lawyers and even a current senior tax office lawyer have criticised the Australian Taxation Office for forcing taxpayers into “confidentiality clauses” that seek to muzzle them by imposing “deeds of releases” to cover up errors and potential maladministration.

As new tax office chief Chris Jordan starts in the role this week, there is also criticism of the ATO’s use of top-tier law firms to intimidate taxpayers, and claims it may be breaching the government’s Legal Services Directions that set out requirements for the provision of legal services to the Commonwealth.

LeadingCompany’s sister site, Crikey, spoke to various taxpayers, accountants and tax lawyers. Many wouldn’t go on the record fearing a potential backlash from the tax office but nearly all are united in the belief the ATO is aggressively pushing aggrieved taxpayers into settlements designed to protect particular ATO officers  who erred, rather than the Commonwealth. Clause 4.5 of the Legal Services Directions states the Commonwealth and its agencies should not enter into confidentiality clauses unless there is a need to protect the Commonwealth’s interests.

“The difficulty with releases and confidentiality provisions is that they are exclusively for the benefit of the [ATO] commissioner,” David Hughes, a tax partner in law firm SMH Tax Lawyers, told Crikey. “Aggrieved taxpayers are silenced and ATO errors … are not brought into the public domain. This allows ATO officers the latitude to continue working without accountability to the public.

“Confidentiality clauses in settlement deeds have their place in commercial settlements, but the commissioner is at pains to emphasise that he negotiates on a ‘principled’ basis, not a commercial one. If that is so, then the principle by which they reach settlements must be transparent. He cannot have it both ways.”

But some lawyers see the benefit of commercial settlements. Andrew Robinson from Robinson Legal, who gained notoriety as the outspoken lawyer for Paul Hogan and John Cornell in their public disputes with the tax office, believes early settlements are good.

“Whether it’s right or wrong, making sure settlement discussions and settlement agreements don’t see the light of day probably means that all parties can be more open in their discussions which can lead to earlier settlements. While discussions take place they can’t be disclosed because they are without prejudice and if a settlement deed happens it’s bound by confidentiality so all parties know that nothing they say should hit the public record.”

The case of Sydney architect Gary Kurzer shows how the ATO can try and force parties into a confidential settlement in an effort to protect its officers from future litigation. Kurzer and his partner sold two investment properties in 2006 under direct instructions from their bank. The taxpayers had cash losses from the sales, and were previously told by the ATO that GST did not apply to their circumstances. But the ATO launched an audit and handed them a tax bill of $207,000 in “GST and penalties” plus tax on “profits of $655,000” never earned.