Tax experts and business lobbies have hit out against a Treasury proposal to reverse the onus of proof — that is to say that someone is guilty until they prove themselves innocent — as part of a bid to stamp out illegal cash economy activity.

Key points: Treasury proposes a crackdown on the black economy, such as cash-in-hand, money laundering and sham contracting

Treasury proposes a crackdown on the black economy, such as cash-in-hand, money laundering and sham contracting Measures considered include a reverse onus of proof, greater information gathering powers and travel bans for large tax debtors

Measures considered include a reverse onus of proof, greater information gathering powers and travel bans for large tax debtors Accounting groups say the ATO already has a lot of power and any additional measures need to be matched with increased safeguards

Treasury's consultation paper handed down late last year had asked whether, in an attempt to tackle billions of dollars lost annually due to black economy activity, the Federal Government should reverse the onus of proof for serious black economy offences relating to terrorism, drugs and child sex offences.

The paper also suggested granting a range of additional enforcement and data gathering powers to the tax commissioner, which tax experts and lobbies warn could be very damaging for ordinary taxpayers who already find it hard to defend themselves during disputes with the Australian Taxation Office (ATO).

The Federal Government's Black Economy Taskforce had estimated that the illegal cash economy — based on a very wide definition of what activities make up the black economy — could be costing the economy about 3 per cent of GDP, or roughly $50 billion a year.

The figure includes a range of illegal activities including under-reporting income, underpaying wages, paying for work cash-in-hand, sham contracting, phoenixing, identity fraud, ABN and GST fraud, illicit tobacco importation, money laundering, unregulated gambling, criminal acts, counterfeit goods and illegal drugs.

Warnings that taxpayer liberties are under threat

Tony Greco from the Institute of Public Accountants (IPA) said placing the onus on a defendant to disprove certain elements of their offence — rather than the prosecutors having to prove all the elements, as is ordinarily the case — was "worrying".

"Such measures could adversely impact the rights of individuals and their liberties."

Mr Greco said the onus is already on the taxpayer to prove that a tax assessment is excessive. This, he said, already acted as a "default reverse onus of proof".

"Our concerns rest with those who may be wrongly prosecuted for offences because they cannot disprove the relevant element under a reversal of proof," he said

Chartered Accountants National Tax Director Michael Croker was also against reversing the onus of proof.

The group's submission to Treasury noted that the consultation paper did not "provide overwhelming evidence on the need for a change".

KPMG tax partner Andy Hutt said, while the firm supported stronger action against the black economy, including strict liability offences for alleged black economy crimes, it did not want to see the onus of proof reversed.

Mr Hutt said it would create a "two-tier system" whereby defrauding the Commonwealth was viewed as more serious than defrauding anyone else. "We don't think that's the right approach," he said.

Boosting ATO powers could do 'more harm than good'

The Treasury paper suggests a wide range of increased data gathering and enforcement powers for the Australian Taxation Office.

Mr Greco said he was worried about the proposed extension of ATO powers, including the ability to obtain certain third-party information within a shorter timeframe for criminal investigations, the imposition of freezing orders on banks accounts for longer periods and the ability to access certain telecommunications data.

"We are concerned that the granting of these additional powers to the commissioner could do more harm than good in how the ATO is currently perceived by the community," Mr Greco said.

Mr Greco said he was worried the ATO's powers would be expanded too far given recent media reports of unfair influence being exerted by the agency during tax disputes.

A Fairfax-Four Corners investigation last year highlighted the ATO's draconian powers and alleged misuse of those powers.

"In the current environment, small businesses and individual taxpayers, whether rightly or wrongly, are sensitive to the wide-ranging powers of the ATO," Mr Greco said.

"There is a perception that the revenue authority has too much power which could be open to misuse without appropriate safeguards and oversight."

Call for more safeguards

Mr Greco said, if new powers were introduced, the Government must ensure that there are strong safeguards and oversight in place, including imposing restrictions on when and how certain powers are to be applied.

He said there should be regular reporting on the exercise of those powers and their outcomes to the Government and the community for transparency, and additional oversight from the tax ombudsman, the Inspector-General of Taxation and the Australian National Audit Office.

Mr Croker noted that the ATO already has strong information gathering powers and did not need more.

The Chartered Accountants submission said, if there were delays in the ATO getting information from the AFP during its investigation, that this problem could be dealt with by giving both bodies greater federal funding.

"If the ATO is to be granted more police-like powers, then the organisation should become much more transparent about how those powers are used and the rights of those against whom those powers are applied," he said.

He said it may be worth the ATO highlighting how it is accountable, given that the unit in the agency responsible for pursuing criminal matters had kept "a low profile" so far.

"Failure to bring the ATO crime unit out into the open … risks claims arising in future of unfair treatment, particularly from taxpayers pinged for some minor wrongdoing," the submission argued.

But Mr Hutt said KPMG did not see any problem with granting the ATO more powers, so long as there were appropriate safeguards in place.

"The ATO should be able to access the same records as the AFP can have access to," Mr Hutt said.

Should travel bans be imposed on people with big tax debts?

Treasury's consultation paper also suggested imposing greater penalties on repeat offenders and the imposition of visa forfeiture and travel bans for those with outstanding tax debts.

Mr Croker said Chartered Accountants had not yet come to a position on whether travel bans are the right way to go.

"This is a substantial weapon in the fight against tax evasion and must be exercised carefully and with due process," he said.

Mr Greco noted that the paper refers to the travel ban model employed in the United States, where 'delinquent' taxpayers who have significant tax debts worth more than $US51,000 have their passport revoked.

He said the proposal "warrants consideration", but that the issuing of any bans should not be at the discretion of the tax commissioner as is currently the case with departure prohibition orders (DPO).

There may also be situations where a travel ban is not imposed on compassionate grounds, he said. For example, an individual travelling overseas to visit a sick or dying family member.

Sham contracting penalties, tests could be boosted

To stamp out sham contracting, the consultation paper suggested increasing civil penalties and lowering the "recklessness" test threshold for sham contracting arrangements under Fair Work legislation.

It suggested lowering the prosecution barrier from recklessly knowing or engaging in sham contracting to one of "reasonableness".

Mr Greco there were already adequate financial penalties under a suite of laws for those businesses engaging in sham contracting arrangements.

The IPA was supportive of the current test being lowered — from a "recklessness" to "reasonableness" test — but said the Government must ensure there was not "inadvertent misclassification of a contractor arrangement".

Mr Croker said the Chartered Accountants submission noted that such a change "may only generate as many questions as it is meant to be solving". "For example, what is reasonable?" the submission asked.

But Mr Hutt said KPMG supported lowering the threshold to a reasonableness test, and added that it could include a requirement that the person doing the hiring complete the ATO's online employee-contractor assessment tool at the time of hiring.

KPMG also recommended non-financial penalties, whereby people who had broken the law more than once over a four-year period, could be named and shamed.

The firm also wants to see greater public education about black economy crimes and the detrimental impact it has on the economy and society.