Doctor-publican John Harvey has unleashed a David and Goliath battle against the ATO, which has already seen the closure of his Royal Oak Hotel at Cessnock.
John Harvey operates the Hunter Valley Dental Practice, and in 2011 bought the nearby Royal Oak Hotel.
The Australian Tax Office (ATO) reportedly allowed Harvey to file returns as one business for tax purposes, until a change in tax regulations from 2015 that altered how the business could reduce compliance costs. The end result was a massive and unexpected tax bill.
Harvey has been fighting what he dubs “unsubstantiated” debt to the ATO for around five years, citing “huge tax bills” he has successfully had withdrawn.
Facing the new bill he put the pub to market last August.
In July 2019 the Federal Court ruled on the legitimacy of an unrelated matter, where Farah Custodians P/L had filed a negligence claim against the Commissioner of the ATO regarding losses incurred following an ATO audit through the company’s tax agent.
The agent had allegedly provided the ATO unauthorised bank account details into which refunds would be paid, reputedly to misappropriate the funds from Farah. ATO investigators discovered the plot, and not only did not disclose the information to Farah, but refunds continued to be paid into the false account.
Although the Commissioner cited lack of precedent and that negligence by the department was “not reasonably arguable”, with accountability only to the Crown, the Court found it could not be concluded duty of care was not “inconsistent or incompatible” and that the matter should proceed.
The case potentially opens the door for small businesses with similar circumstances to lodge negligence claims against the ATO, where wrongdoing was known to or suspected by the Commissioner.*
In September Oak Hotel Cessnock P/L and Hunter Valley Dental Surgery P/L lodged a Statement of Claim against the Deputy Commissioner of Taxation in the Supreme Court for $4.5 million, seeking damages and costs.
Last week the Royal Oak was forced to close, putting dozens of staff out of jobs, however the case between Harvey and the Commissioner continues.
The ATO is believed to have engaged renowned law firm Ashurst to lead its defence; the department is unable to offer comment on matters before the courts, but Harvey and his lawyer believe if proven it could rattle the floodgates for the tax department.
“This will be the most significant case for small business in Australia,” he says. “If we win it will change the way the ATO deals with small business.”
Small business remains the heart of the Australian economy, employing more than half the country’s workers, and according to ongoing exposes of the tactics used by big business to avoid taxation, small businesses are the cash-cow of the government coffers.
The Hotel will remain closed until further notice, Harvey says pending compensation by the ATO.
More on the story as it becomes available.
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*Law firm Clayton UTZ commentated of the July decision that we should be reminded of late former Justice Donald Hill’s comments: [‘What Do We Expect From Judges In Tax Cases?’ 1995]
“The Income Tax legislation may impose trust in the Commissioner to perform his tasks properly and impartially as he generally does, but his actions must not be immune from review.
“The inescapable fact that taxation is the cornerstone of our society must not be allowed to stand as a justification for arbitrary acts, bullying or the erosion of civil rights in the name of exaction of taxes.”
