Small business and individual taxpayers hit with hefty tax bills that they want to dispute will continue to be held guilty until proven innocent, and the Australian Taxation Office won't have its appeals and compliance functions split under a separate commissioner, the federal government has said.

A parliamentary inquiry had pushed the government to radically overhaul current rules that give the ATO extraordinary powers to hunt down taxpayers, after hearing taxpayer complaints about heavy-handed and unfair treatment at the hands of "cowboy auditors".

The PBO expects the income tax take to rise with wage growth and bracket creep until 2022-23. Credit:Jim Rice

The tax disputes inquiry, chaired by Queensland Liberal National MP Bert van Manen, had suggested the ATO shoulder the burden of proving fraud or evasion in some cases. It stopped short of recommending the ATO be split in two - an idea floated by former treasurer Joe Hockey before the Coalition took power.

But the inquiry, headed by the House of Representatives Standing Committee on Tax and Revenue, had recommended that the government establish a new second commissioner for appeals. This was an idea also put forward by the Inspector-General of Taxation Ali Noroozi, but one that the ATO had been fiercely resisting.