The trial of former tax deputy commissioner Michael Cranston is set to resurrect questions about the tax office’s integrity and put its reputation back in the dock.
Mr Cranston’s long-awaited hearing over charges of allegedly using his influence to help his son Adam in relation to an alleged $157 million tax fraud will start on Monday and is expected to continue for 10 days.
In the 18 months since the charges were first laid, the ATO has steadfastly sought to restore public trust in its systems through multiple internal and external reviews.
But lawyers and industry figures say that could all be up in the air again depending on what emerges in the trial.
“It could affect the ATO’s reputation going forward and that will inform the prosecutor’s approach to the case – they will be looking to minimise any embarrassment,” prominent tax barrister Chris Wallis said.
The jury is expected to hear evidence from 11 witnesses and police phone taps of conversations between Mr Cranston and his son.
The former deputy commissioner, who was the public face in cracking down on tax crime, is the first to face trial in the Plutus Payroll scandal – Australia’s biggest corporate tax fraud that has seen more than a dozen people charged.
Police allege that Adam Cranston and others, including Michael Cranston’s daughter, provided “free” payroll services for employers through a company called Plutus Payroll. However, the syndicate would retain portions of pay as you go tax through a sophisticated network of lower companies.
The lower companies, run by dummy directors, would then wind up if they were pursued by the ATO.
The estimates for the total amount of tax defrauded has varied from $165 million to $130 million, with the most recent ATO estimate at $157 million.
Police alleged the money was spent on luxury sports cars, planes, motorcycles, residential properties, jewellery, artwork and fine wines.
The Australian Federal Police has been clear it does not believe Michael Cranston was aware of what his son was doing and has not charged him with the fraud.
But even the indirect relationship remains hugely embarrassing for the tax office given Mr Cranston’s role in heading the phoenix activity taskforce – an activity Plutus allegedly engaged in on a grand scale – and scrutinising “unexplained wealth” when prosecuting high-net-worth individuals.
‘Huge error of judgment’
The charges against Mr Cranston relate to two counts of allegedly using his office with the intention of dishonestly obtaining a benefit for his son.
The first allegedly took place in February 2017 after the ATO issued garnishee notices on accused co-conspirator and Plutus founder Simon Anquetil, triggering panic in the syndicate.
The ATO’s internal investigation team was already scanning for tax officers who might want to find out about the covert investigation, which was run on a “need to know basis” and sealed off from Michael Cranston and his team.
After being tipped off by the AFP, they found that Mr Cranston separately asked two ATO officers to look to see how big the issue was. Both reported back to him that their access would not allow them into the case file.
A second charge took place between April 28 and May 2 after the ATO garnished $46 million from the Plutus accounts, forcing them to halt payment to 2000 clients.
In phone taps reported by the Sunday Telegraph Mr Cranston told his son at the time that he would arrange for an ATO officer to see him and warned him of the dangers of a phoenix investigation.
He told his son “they have to think of a strategy” and agreed to meet with Adam and apparently alleged co-conspirator Simon Anquetil.
Police alleged that he then asked some tax officers to make internal inquiries.
No information in the case file was accessed but as a result of the officers’ inquiries they discovered the ATO’s covert financial crimes investigation was issuing the garnishee orders.
Six ATO officers were subject to disciplinary investigations over the actions and two were sanctioned.
A report by the inspector-general of taxation released last year said that the attempts to access the investigation were unsuccessful due to the ATO’s strict internal IT systems control.
ATO commissioner Chris Jordan has since told Senate estimates that there is “no evidence of actual intervention or influence on the audit cases or of money being refunded or of tax liability being changed. No deals were done”.
“This was a father misguidedly, with a huge error of judgment, trying to find out some information for his son.”
‘The system worked’
Tax Institute senior counsel Bob Deutsch said he believed the ATO had successfully ruled out any systemic issues suggested by the charges against Mr Cranston following the extensive reviews.
“The whole reason [the alleged abuse of office] was uncovered was because the tax office had a system in place to make sure things were detected. In that sense, the system worked.”
Mr Wallis, who has represented small businesses and individuals in disputes against the ATO, agreed that the tax office and the government had managed the fall-out “relatively well”.
But he said there were some who would not be satisfied and would be watching the trial closely.
“There will of course be those outside the system – prosecuted in [Mr Cranston’s] name – who will jump all over whatever’s handed down [in the trial].”