When the Taxman Goes Viral: Inside the ATO, Crypto Tax & Australia’s Debanking Crisis with Harry Dell

In this deep-dive conversation, I sit down with Harrison Dell, one of Australia’s most recognisable tax lawyers and the founder of Cadena Legal. You may know him from TikTok and LinkedIn, where he turns dense tax law into sharp, funny, brutally clear explanations - including his famous dig at the ATO’s DeFi guidance being “single-ply toilet paper.”  

But behind the humour is a lawyer with rare insider insight.

Before founding Cadena, Harry spent years inside the Australian Taxation Office, rotating through the graduate program, complex audit teams, and eventually the Tax Avoidance Taskforce. His experience gives him a uniquely honest view of how the ATO thinks, how it selects cases, and what it gets wrong - especially as debt collection hardens and litigation outcomes slip.  

Across two hours, we cover:

🧩 Inside the ATO

• How the ATO actually works behind closed doors
• Data matching, AI, and the staggering amount of information the ATO holds on every taxpayer
• Why technical expertise inside the ATO is declining - and how that affects audits, disputes, and outcomes
• The surprising distinction between incompetence, malice, and simple misunderstanding inside audit teams

⚖️ Crypto Tax & Web3

• The biggest crypto myths Harry still sees every month
• Why token wrapping, staking, airdrops, and smart contracts produce messy - often illogical - tax consequences
• Why Australia desperately needs safe harbour rules for digital assets
• The ATO’s limited understanding of crypto despite holding enormous amounts of data
• How Harry became the most recognisable crypto tax voice in Australia

🏦 Australia’s Debanking Crisis

• Harry’s own story: how AirWallex abruptly shut down Cadena’s accounts mid-transaction, freezing client money
• What this means for crypto-aligned businesses
• Why banks can quietly kill an entire industry by restricting access to payment rails

💥 The ATO’s Hard Pivot on Debt & Insolvency

• Why the ATO is aggressively chasing $55 billion of outstanding tax debt
• How director penalty notices (DPNs) and garnishees are being used faster and earlier
• Why the ATO is rejecting Small Business Restructuring Plans (SBRs) it used to accept at 15–25¢ in the dollar
• The economic consequences of forcing viable businesses into insolvency
• The quiet return of a more punitive, pre-Chris Jordan ATO culture

🏛️ The Courts: Bendel, s100A, Part IVA, and Why the ATO Is Losing More Often

• Why the ATO lost Bendel at the AAT, then the Federal Court, then the Full Federal Court
• What happened in the High Court hearing - and why the judges pushed back hard
• The deeper problem: deteriorating technical capability + courts less willing to defer to the ATO
• Why taxpayers should be paying attention as these test cases reshape trust distributions and family tax planning

📢 Personal Branding for Professionals

• How Harry turned tax - the driest topic imaginable - into a social media brand people want to watch
• The future of professional content on TikTok and LinkedIn
• Why authenticity is now a competitive advantage in law

This episode is a true insider’s map of how tax power works in Australia - from audits to crypto rules to the evolving role of the courts. If you’re a founder, adviser, accountant, lawyer, crypto investor, or just someone who gets nervous when the ATO emails you: this conversation will change how you think.

Transcript

SPEAKER_03 0:00

Today's guest is one of the most recognizable tax lawyers in Australia, and probably the only one your TikTok algorithm actually likes. Harris Lundell is the founder of Kadina Legal, a boutique Brisbane-based tax and commercial firm specializing in crypto, DeFi, and high complexity private client work. Harry is involved in the crypto and web3 ecosystem beyond Kadina Legal. He's a founder of Black Sheep, a FinTech, making it easier to buy and sell crypto with Fiat, and serves as general counsel for Bluebird, a Web3 software venture helping companies transition into blockchain applications. He's deeply passionate about crypto accessibility, digital asset regulation, and building practical bridges between traditional finance and decentralized tech. Before founding Kadena Legal, Harry worked at the ATO, the tax office, including time within the tax avoidance tax force, where he gained deep experience in corporate structures, compliance strategy, and how the ATO approaches complex tax matters. He started as an ATO graduate and then moved into a client engagement officer, later specializing in the tax force team. That background now shapes his work at Kadena Legal, helping clients navigate tax structuring and audit matters with a perspective that blends government experience and private sector insight. Harry is one of the most followed TikTok tax lawyers of social media, known for turning dense legislation into bite-sized, funny, and brutally clear explanations, once describing ATO DeFi guidance as single ply toilet paper. Recently, he's been vocal about debanking of the L Wolex abruptly shut down Kadena's accounts and held thousands of dollars in client funds, a story that highlights how hard it's becoming for crypto aligned businesses to even keep a bank. So today we're unpacking it all the inner workings of the ATO, the future of crypto taxation, why lawyers need personal brands, and what it feels like when a fintech platform literally cuts you off mid-transactions. So with that very long introduction, welcome to the show, Harry.

SPEAKER_00 1:55

Thank you, Ryan. I think you that's the longest introduction I've ever had. I sound awfully impressive.

SPEAKER_03 2:01

You've got a great background and um you've got a very unique take to how you know you've I guess built your career and your personal brand on social media. So we'll definitely dive into that. I guess starting off at the origin story, going from the ATO to where you are today. I mean, what originally drew you into tax law?

SPEAKER_00 2:19

I I say this about people all the time that our in-tax all the good ones landed in it by accident. And I certainly did. So I I had two offers at the end of my last year of my law degree. One of them was the tax office, and the other one was to work for no pay for an entertainment lawyer. And that sounds fun, but getting pay, uh, getting your first legal job as a paid job is sort of the dream. So, you know, I I did for a second weigh out the non-paying job because it sounded fun, which in retrospect was a very silly thing to even think about. So I'm very thankful I took that that job at the ACO. It's always accidental because I I didn't even actually cover tax law at uni. It's not a required unit of of study. They train you at the ATO. It's really all you need to succeed in most any area of law is a good logical brain where you can digest the parts and separate it out. Sure, taxes are complicated and there's lots of things to digest, but it's just one bite at a time. But at the ATO, it's it was an interesting progression in that you get to experience a lot of things at once. So the graduate program was rotations and and all sorts of things, which which was great. I got placed in a team that I wasn't super happy with, but that's not that big of a problem because you can simply move around inside the tax office. And but I I I remember distinctly when I knew it was time to leave, and it was about 18 months in, and you know, I was in complex audit team, and we do these case conferences where you know you go and as you know, various team representatives go and we talk about complex cases. And there was one, and these guys made this this cool structure, which I won't repeat here because it's confidential, but it was really cool. I was impressed. I was like, they found they found a nice, uh, I'll I'll use the term loophole, and they said, Oh, we're gonna attack it with this rule with that rule. And I said to them, well, if they set it up that way from the beginning, it would be very difficult to attack. And someone said, That's not what we do here, Harrison. And so I was like, Oh, yeah, I think that's actually right. And I sort of knew that I wasn't gonna be at the public service forever. That's not really a good fit for my personality. But I knew that the time had sort of come to sort of start looking around. So moving to the private sector after pretty much bang on two years, and that was enough ATO for me.

SPEAKER_03 4:41

Yeah, absolutely. And I can imagine, you know, obviously, I mean working in in private sector versus public sector is different, and obviously the ATO can be quite bureaucratic and had to have their own style of thinking. So, yeah, that's cool. Is there something that surprised you most about working inside the ATO?

SPEAKER_00 4:56

I I had no expectation coming into it. So before I was at the ATO, I was running a cinema in Sortel, which is near Cos Harbor on the Mid North Coast, and uh I I I wasn't actively looking at how public service works, I wasn't looking at anything. I actually just applied for every job there was. And for some reason the ATO was silly enough to take me and look where we are now. Yeah, fantastic. No, that's right.

SPEAKER_03 5:22

What do you think private practice lawyers get wrong about how the ATO actually thinks and the inner workings of it?

SPEAKER_00 5:29

I I think I think the private sector underestimates the resources that the ATO do throw at cases. You it sometimes appears like there's only one or two people on a case, but like that case has been discussed with all sorts of people, um, if it's a complex audit case, which is predominantly what what we deal with, more complex rulings, that sort of thing. I've ignored the cat behind me. I didn't know he was in here. The it's sort of a two-end either it's over-engineered or you'll get very little consideration in those sort of high-volume things like debt cases. The one thing that the private sector doesn't understand, and you know, I wish I could go into specifics, but I'm still actually bound by secrecy laws and all sorts of things. But the level of data that the ATO has is immense. And and when I was there at least, they were only starting to scratch the surface of actually using it. But now we've got AI, we've got much faster ways to concute large amounts of data, and they probably have the biggest amount of data of any government agency because they get it from every other government agency. So cars, land, everything that's registered, they know everything about even sort of insurance, crypto, bank accounts overseas, where you've traveled, all sorts of things. They they have it all, which is just incredible when you really think about how much they could have on you for your whole life, an immense amount of data.

SPEAKER_03 6:53

Yeah, definitely. No, I'd love to get into that a bit later on in the data matching program. And um, obviously, you know, with AI exploding, it's gonna make their job a lot easier to catch inconsistencies. I guess just briefly on that last one, yeah, how did those experiences shape the way that you now defend clients under audit and knowing how they operate?

SPEAKER_00 7:10

I think it helps me understand when an officer, you know, maybe taking a bad approach, and whether it's malice or whether it's stupidity, because the two are very often confused. One thing that's that was honed into me very early in my private sector career was you must always be respectful of the ATO. This is not like a traditional litigation context where you know you're arriving on equal footing with some facts and you argue about it, is no matter how many resources you've got, almost guaranteed the ATO's got more or can get as much as they need to fight certain battles. So you don't want to unnecessarily piss anybody off. That being said, there have been maybe two occasions in my whole career where I have been quite upset with the conduct of officers and such, and you really push it. But unlike litigators, you know, those bulldog litigators that you would sort of see, you have to treat it very, very differently. You can't take that approach with the ATO, they don't appreciate that at all, and it just makes it um more expensive for the client, takes a lot longer, more painful for everybody involved.

SPEAKER_03 8:21

Yeah, definitely. We'll go into that a bit more later on as well. I know that the ATO has obviously pursued some public litigation and their cases haven't been as strong in the last few years as compared to to private COVID times and stuff. So we'll get your thoughts on that. And I guess just briefly on crypto, you know, what's really cool and what I like about what you do is that you've brought a lot of structure and a lot of clarity to the crypto and web 3 space, especially on TikTok over the last few years, then you've become the go-to voice on crypto tax in Australia. So I guess just to start off, what do you think is the biggest myth that still won't die out there?

SPEAKER_00 8:53

I thought the the the biggest one by far is that you only pay tax when you withdraw it into fiat. Uh it's it's just not true. If that was the case, then you could swap into stablecoins and back into anything else without paying any tax. That would make it a greatly tax-preferred asset. No other asset has that treatment. If if bartering was allowed to be a full exemption, we would have been doing it with all sorts of assets years ago. So it's just not true. And I still see that error coming up at least every few months in some pretty serious cases. That's definitely the biggest myth.

SPEAKER_03 9:27

Yeah, but I mean, how far across like crypto and web three do you think the ATO are?

SPEAKER_00 9:33

Now that one's hard to really know. So they certainly are getting some data. They have the data matching program where they get data from certain exchanges, not all exchanges. That data will increase. So it's slated for next year, but I think it'll actually be the year after, is when the crypto asset reporting framework comes in, which is the similar framework that we apply to offshore bank accounts, is if it's an Australian tax resident that operates it or owns it or controls it, then it's reported to the ATO. Same with crypto accounts with exchanges, not obviously wallets that are self-hosted. The ATO have a lot of data, but in terms of their understanding, I do think it's quite limited. I have only really been seeing active crypto audits in the past six months. This is after it being, you know, top priority for the last three or four years, which I would have loved. That'd be lots of work for me. That would have been great. We had plenty to do. I didn't need more work. I'm kind of thankful that it didn't really go into the spotlight that much. But of the audits that we have assisted with, we had some very strange questions, which sort of impart that there is a bit of a lack of understanding. And that's okay. That's not so bad because even with any kind of business that any taxpayer has, the ATO is not going to have all the information. So there's always a bit of teaching and helping them understand, which is always the fastest way to get through an audit anyway. So it was it wasn't really a problem. They know enough foundational stuff to be dangerous, but they are starting to listen to industry as well and build that understanding of what's happening like on the ground for clients. But I've been talking to Treasury and Board of Tax for years about how people are doing it. Structures and all sorts of things and things that would like done. So they've certainly got information, but whether they're sort of conscious of it just yet, I think that's only turning on now.

SPEAKER_03 11:24

Yeah, definitely. It seems like they're bringing more attention to it. And they had the Bitcoin as a money ruling, which caused a bit of chaos online. I mean, what do you see has changed in that space and what still hasn't changed over the last few years?

SPEAKER_00 11:36

This is the the Victorian criminal case, is that right? Yes. Yeah. That it's funny, right after that that case happened, I was on a whole bunch of podcasts. You know, I was talking to Binance and others, and very much a non-event that case. All all first of all, it was a state county court decision in a criminal matter. So that doesn't override federal tax rule. And all that he said was that it's like money. There was no, oh, it is money under the Currency Act, which would maybe in part something, but it's obviously not currency under the Currency Act. So it was yeah, the the AFR published that article and caused mass panic or mass glee, you could say. And I spent a lot of time telling people that it wasn't very exciting and nothing had really changed. Which isn't a great story. The AFR didn't publish that. They just published the cool setsy bit.

SPEAKER_03 12:29

Yeah, no, definitely. And I guess it still leaves a lot of fuzzy lines out there. I mean, where do you think the ATO is still drawing those fuzzy lines? You've got, you know, airdrops, wrap tokens, and stacking. You know, how does it all kind of fit in? And you know, how can investors or people in the crypto space be thinking about that from a tax compliance standpoint?

SPEAKER_00 12:47

There's there's there's too many issues to even note them all. But even fundamentally, I've I've kind of put it under one single heading, which is what's the tax consequences of using a smart contract? Because when you're using a smart contract, the crypto goes into another wallet that you don't control, but you have rights. You can call it back or whatever the smart contract says you can do with it. And other people have rights too, generally, depending on the kind of smart contract. Now the ATO have have been very nonspecific so far and said, well, that's a disposal. And that's just really confusing. Because it's not, like economically, it's not a disposal. And the whole point of capital gains tax is to tax economic disposals. But it's kind of mutated and twisted over the past almost 40 years now, or 40 years this year, into something that is there to kind of catch people out. Like those fundamental rules are still there, but then there's you know, there's 56 CGT events. The most common one is, you know, a disposal event. But then you've got you know, CGT event L4, which is a consolidated group, does XYZ, which like is there to tackle like a specific mischief. And it's clearly over-engineered. But the these basic concepts, yeah, very high-level specific guidance is what we're desperately needing. It was quite disappointing the Board of Tax said legislative clarity is not necessary because specific crypto legislation wouldn't be very helpful. And they were citing things like, you know, industries don't have specific legislation. And I said, well, mining has specific legislation, housing has specific legislation, retirement village have specific legislation, boarding houses have specific GST legislation, a whole range of things are very very much specifics, and they're just amendments to make it so that the act works appropriately and taxes people at the right point. Because most people are happy to pay. It's just it's got to be at the right point. The guidance that we've got is you know, the the the single ply toilet paper you referred to before. It's just ATO web guidance, which like I don't have described it this way before. It's just the commissioner's blog. You know, he could be putting his favorite New York cheesecake recipe on there. It doesn't change anything in the real world. And somebody actually tried to rely on the website and enforce it on the commissioner, a claim for a stoppable, and uh it failed because they're like, well, it's number it's a website, man. Like, what are you what are you doing? Like the you can't bind the commissioner with his website only with public rulings. The the the sort of more sinister bit of it, and this isn't just crypto, is we're seeing a massive downturn in the number of public rulings that are published. The ATO is publishing less and less of them, and more and more, you know, informal guides, website stuff, practical guidelines, law companion guides, none of these are binding on the commissioner. So you like taxpayers don't get that value that they used to get from public rulings. And it means it just creates more uncertainty. And I've no doubt that that the you know the team managing the ATO website and the guidance think that they're doing a good thing by providing some guidance, but like more noise if it's not the if it's not like what we actually need to hear one way or the other, it just makes it actually worse. And this is what we've tried to tell the ATO for a long time.

SPEAKER_03 16:00

Yeah, yeah, absolutely. And I guess there's many elements to it. I think the ATO could be under-resourced, which is something that I've got in a common question. But I guess also, do you think it's more around they providing less public rulings, less guidance around that to purposely kind of keep it, you know, it's confusing because they don't necessarily want to get caught out or then have situations where they're losing tax revenue.

SPEAKER_00 16:22

Yes. I don't think that situation is one that they came to consciously, though. Um I think this was a a very slow change of position that uh many officers probably wouldn't even acknowledge it. But the ATO would put out all these rulings. These have something called um ATO IDs, interpretive decisions. So we call them atoids in the industry because we we like cool names like that. These atoids, they'd publish heaps of them, there's thousands of them, and they're like little single questions. And it's like the most bizarre questions, but you you you would expect it it would go something like, well, someone's, you know, people have been asking this question quite a bit. Let's answer just that question, and it's a very short ruling, and it's binding, but then they stopped doing them. They just they just stopped doing them. They go, Yeah, that we don't like that product anymore. And and that massively reduced the number of guidance. And those getting those specific issues addressed became very, very difficult. That'd say you should get a private ruling, but the commissioner doesn't want to answer the same question a thousand times in a private ruling. And private rulings were expensive and slow and inefficient, and they're published anyway. So they were like, what's the downside in just answering it? I really missed that product, it was great. But they've slowly been removing it, and I think because it gives them a strategic advantage in taxpayer discussions and negotiations and in litigation to go, well, we're not, you know, like that's not our view. It might have been the old view, they can remove the ruling and argue whatever they want, but that looks uh that's coming from a position of weakness, just like if you see the taxpayer alerts that they publish, these are basically you know schemes that they see and they say, Here's an alert about a scheme, don't do it because we will come and mess you up and you're now on notice. Do you think that'd give you that they'll put out those schemes and those taxpayer alerts if they didn't know how to actually counter it? Of course they would. They'd be giving you a great, a great tax planning strategy on a silver platter. So there's a whole range of schemes that they have a great distaste for and they don't publish it because they can't send the right messaging. And I think that uh this comes back to what we're lacking in tax law broadly across every sector, is we can't get enough certainty on things to commercially create value for the economy. It hinders economic growth massively because tax the the tax act isn't you know thousands of pages because it's really hard. It's thousands of pages because it's the biggest economic control tool that we've got. The biggest lever we've got is taxation. That's the way we would do economic management in this country. So that's why it's so big. Other countries, it's way smaller, it's tiny. And they and they make much more income tax from it as well. So more doesn't mean more tax, more just means complexity, control. And I think, yeah, this it was an accidental position that the commissioners found themselves in where less guidance means that they can um sort of have more flexibility in how they argue things to to to argue things in public interest, which is a shame because the the days of sort of taxpayer certainty are you know long gone.

SPEAKER_03 19:34

Yeah, absolutely. It's it's definitely challenging and they're playing it to their advantage. I mean, if you were in that position, or just at a very high level, what would good guidance from a crypto and web 3 space look like?

SPEAKER_00 19:47

There should be safe harbor rules. So we've got plenty of these kinds of rulings already. One example, not not a crypto one, I'll come back to crypto specifically what we could do, is the definition of what a fixed trust is. So a fixed trust requires that all the income and capital is fixed, non-changeable. But technically any variation power that a trustee has would breach that. So it's a very high bar. Even if the beneficiaries can amend it, then that's actually breaching it as well. So the ACO has put out this guidance saying, hey, look, if you've got a very vanilla trust with these kinds of features, we'll just consider it a fixed trust. Because they have a discretion to do that anyway. And we're like, great, that's fantastic. Most people don't even think about it. They go, unit trust, fixed trust, cool, sweet. But we don't have any of those things for crypto. So understanding what sort of tokens they consider to be certain kinds of things like managed investment schemes, or whether income from a certain kind of protocol, like a liquid station token, would be taxable in a certain way. You know, what if it's a rebasing token? How do we treat wrapped tokens? And the but the the most uh clear example of this one is Ether, like the vanilla ether token that that people got at the TGE in 2015. That's not the one we used today because there was a point when you had to actually upgrade it from the vanilla variant to the uh ERC20 variant, which is basically the new convention that the uh Ethereum DAO community came up with for standardizing tokens. So you've got to upgrade it. It's specifically a kind of wrapping contract. And the ATO said, well, wrap like you know, token for token exchange is taxable. And then we're like, well, technically this is a token for token exchange. Because the old vanilla ETH are in a smart contract stuck somewhere uh in a wallet stuck somewhere. And then you get new new cool ETH out. Old ETH is gone, effectively gone, but it still exists. And they say, Well, yeah, that's that's a token for token event. Well, it doesn't make sense. Like economically, nothing's changed. And these are the kinds of things where we could have those concessions that give people a lot more certainty, and they stop paying tax lawyers and accountants to answer these basic questions. And people can de-risk and actually get their tax returns right. So it means less resources that the commission needs to expand to order people. It means less interfessional fees. Like these are all around good things. I've got more than enough to do. I don't need to pad my own sort of amount of work. The tax lawyers are plenty busy. But just those basic things, and then yeah, sure, I will probably use those to leverage sort of a foundation for a further, more complex understanding. But that means I've actually got a basis of law instead of waiting 10 years for some case to happen. And there are a few cases happening, but they're taking a very long time. Justice is not swift, especially in TAS.

SPEAKER_03 22:39

No, definitely not. And in your like from what you see around like the cryptist face, are the ATO aggressively going after people, or are they kind of focusing their enforcement efforts on, say, other things like insolvency right now?

SPEAKER_00 22:50

It's uh there's very little on crypto, but there is a little bit sort of trickling through. It's almost entirely on debt collection. So the ATO's got more than 50 billion of collectible debt. And they're very aggressively going after it. There are some really concerning stories about that as well, with the volume. More volume means it's just more mistakes. And that's the same in any business or any industry. So I've already seen cases where they have issued assessments and garnished on the same day after a covert audit the taxpayer wasn't even aware of. Not going to say that the taxpayer was completely without blame for what they may or may not have done, but that's not due process. And that means these debts have been raised. And even if they're wrong and proven that way later, the business is done. There's sort of no point in even challenging it any further. Because, like, if your cash is all gone, you can't pay your insulties, you can't do all sorts of things. And the ACO, I think, is forgetting the purpose of the insolvency regime. Sure, a lot of people don't have the funds to cover their historical tax bills anymore. And some people say, well, you know, they should pay it back eventually one day. The whole point of insolvency and bankruptcy regimes is to free up capital to actually create economic value. Because if you're stuck in eternal slavery to debts you had 20 years ago, you can't contribute to the economy very much. And the ATO forgets this. And they hardline refuse Dockers and all the other products that you can do in insolvency to maybe get an outcome. And they say there's no point being lenient, there's no point waiving things. It's better off dealt with through the bankruptcy process or the insolvency process. And like frankly, it's not. It's it's if the ATO is the only creditor and they know there's no assets there, they should just cut a deal. Let the person move on. The deal can be quite aggressive in favor of the ATO, include security, include undertakings. But pushing them into bankruptcy actually often gets them a worse outcome anyway.

SPEAKER_03 24:53

Yeah, absolutely. I like what you say around creating economic value and that being the underlying principle of the tax act. I mean, in the last few years, post-out of COVID, you know, there was a bit of moratoriums from the AGO, but then since then they've gone quite hard on like director penalty notices, small business restructuring plans, I think you've spoken about previously. They used to kind of accept 15, 25 cents in the dollar to close it out, but now they're taking this hardline stance of aggressive decollection. Do you think the primary reason for that is, again, that$55 billion tax shortfall? Or I guess what kind of drives that shift?

SPEAKER_00 25:26

Well, as you say, Ryan, they're they were very lenient in COVID. Look, bankrupting people during COVID was probably something everybody agrees is a bad idea. Letting them recover. But like those tax debts from that period, I don't expect more than 20% of them are ever going to be paid. And like continuing to try and collect that that debt through sort of aggressive tools at this point is not serving the Australian economy very well. Um, but the ATO doesn't want to look like they're weighing$40 billion of debt. So they're chasing it and they're creating a whole lot of strain on the economy. Where I don't have I don't have all the numbers sort of in front of me at the moment, but the Australian economy is not sort of growing. If you remove housing, which is not actual growth, then there isn't much really going on here. And I think as a population we sort of forget that. And we've got very high taxes. Very high taxes aren't a bad thing if it's being spent in the right way. A lot of people will say it's not being spent in the right way, and I'll leave that to sort of other political discourse. But if the whole point of this sort of system is to generate wealth for the nation, and it's not it's obviously not working very well right now. Because we can't just keep buying houses. We just can't. We need to do something else that isn't houses. Anything.

SPEAKER_03 26:44

Yeah, absolutely. I guess that's how they kind of measure it. I mean, they're kind of looking at, I guess, my guess would be aggregate collections. How much is the shortfall? How much can we just put through the process like any kind of debt collection firm and run it through the courts and the insolvency? I mean, the permanent hardening of their attitude, do you think that's something that's more permanent and that probably will go into the next, you know, we know the next decade even?

SPEAKER_00 27:05

Yeah, I think that'll be around for quite a long time. So when I was at the ATO, we had Chris Jordan as commissioner. And Chris Jordan was the very first private sector born and bred commissioner of taxation. Very first ever. It was a big thing at the time. He did things like change the language from taxpayers to clients. We focus on client service, doing you know, right by the client. You know, they have their obligations. They have one job, protect the revenue. That's the job. Sorry. Chris Jordan did his, I think it was eight years, and he left, and we have the new guy, Heffron, and he is born and bred public servant, the polar opposite. He's back, he's changed the language from clients back to taxpayers. And I think if that doesn't signal a shift back to how the ATO used to be, I don't know what what will, but we're seeing hardline debt collection, we're seeing the language change, we're seeing old habits crop back up in terms of errors. This is probably something to talk more about later, but the brain drain from the ATO. So even when I was there, the like a lot of those senior officers were focusing on replacing themselves with very knowledgeable sort of subordinates who could take over. A lot of those people still haven't left the ATO because they haven't actually been successful in that succession planning. Because people have been going in in and out, like it's becoming very public service. Whereas the ATO used to actually be quite insulated, and you'd stay at the ATO and you'd spend 20 years there, and you'd be an auditor for maybe 15, and then you'd be doing something else and advise and you'd have that experience take you through. But we're seeing a very transitory kind of public servant lifestyle sort of creep in. This is just anecdotally, like this is my observation externally. There are less of those sort of lifers at the ATO than there used to be. Because this is less of that um positive attitude towards public service. It's quite a reputable job, yeah, it's a very important job. But people come in, they get the salary, they do some stuff, there's no real performance metric analysis happening. As long as you're not making massive errors, you can send any of those jobs for a very long time. And then you leave and you take a promotion. And the job barely moved from when you started there. So we're just we're just getting those inefficiencies back. We're getting the the old school ATO back, which is if they don't like it, they're gonna throw the book at you, and it's very expensive to defend that. Which is certainly not bad for tax lawyers. We've got plenty to do, but you know, as a superfall, we don't really need more to do. We've got plenty already.

SPEAKER_03 29:42

Yeah, definitely. So that I guess that creates a lot of casualties. I mean, obviously, individuals and the ATO's ramped up debt collection, you know, they're using Recovery Scorp and other you know agencies to recover money on the commercial side. They've obviously worked on the commercial credit reporting for ATO tax defaults for the credit bureaus. And then obviously, you know, with the changing stance of small business restructuring, I guess on that point, you know, what do you see as the ATO's role there, given that if they used to reset 15 to 25 cents in the dollar as a creditor and take that, that kind of meets the objectives of the tax act. And if they're the ones then not approving those things, how does that kind of play out into, I guess, you know, businesses, individuals, and then the ATO more broadly?

SPEAKER_00 30:24

It just pushes people into bankruptcy, which sure, you know, assets become up for up for grabs. But often that that deal is the best deal they can put forward anyway. Because you only get one shot at a small business restructure. The it's it's a cheaper, faster, more efficient process. How it basically went down is the ACO started cracking down on debt. The SBR process was barely used up until that point, it was very minimal because it's quite new. And they were taking 15, 25 cents on the dollar, and they were doing their checks. So they made sure, okay, the company didn't just make a million dollars of director loans and then keeping the 100K offer. They actually would require things like director loans be paid or heavily explained about why those loans are sitting there, where the cash is, that sort of thing. They would make sure that employee entitlements were paid, which is, I think, more important than the tax itself being paid, the making sure people have their superannuation. And then they would only then really assess it and take it under consideration. Before that point, they had they had said, like, we won't take it if you haven't paid the super. And if you can't pay the super, then generally you wouldn't be able to do an SBR. You need to have your lodgement up to date. There's quite a few rules. But what happened is they started, you know, pressuring for debt collection. Everyone, you know, got stressed and panicked and they had to go to insulting practitioners who put them through this process. And then the ATO is like, damn, everyone's using this SBR process. This is crazy. And we're like, yeah, one wonder why, mate. Like, because you're pushing all the debts, obviously. Like, like that's a natural effect. And they said, well, everyone's getting too many deals under the SBR. Or, you know, they're they're gonna be much more harsh. And and it's like, well, that's a very uncommercial way to think about it. Because if all you can get is 15 to 25 cents, then the ACO should take that, save the bankruptcies, the you know, the potential bankrupt estate to give the maximum payout and get them back in, producing something for the economy, making jobs, continuing the business, which is mainly what the SBR was for, was for continuing the business. When they vote against it, it's pretty much a death sentence for the business in that current form. Sure, it may come back. If the director or whatever goes bankrupt, then they they can't manage a corporation anyway for at least a few years. But that's not in the best interest of Australia, I think. I don't think those considerations are there strongly enough. Um, there was a very someone very, very cheeky put in an FOI request for the um ATO SBR internal guidelines. And there are internal guidelines, and they were released, but they were unfortunately redacted for all the good stuff that we wanted, such as, you know, what percentages would they accept? You can ask insolvency practitioners, and and they'll generally know what's being accepted and what's not being accepted, because they're doing it all the time. But the ATO do have guidelines internally about what to accept and what not to accept, and they change those not on the basis of how they're supposed to do it as a creditor, they're supposed to act commercially. What's the best result I can get for the least effort? It's the best return on my capital to this point in terms of pursuing the debt. What do they have? They and they have some other considerations, like you know, general fairness principles. You don't want to take really cheap deals and then you know push other people into insolvency. You want to be relatively consistent, but just raising that bar with no other basis than we should be getting more from these estates is not good tax collection, not good debt collection. It's mixing that purpose of maximise the revenue, which is the job, protect you know as much revenue as possible, with we don't think this is fair. We don't like the SBR process. But that's the law, that's how it's supposed to work. And I see this with some other regulators as well. Uh ASIC are very famous for sort of flip-flipping and changing their views and then losing in court, even more so than the ATO do. The ATO used to have a stellar trap record in terms of courts and successful in the courts. In debt cases, in tax technical cases, I've got to say that that record would have taken a beating. I don't see much publication about a 90% win rate in the courts anymore. Because I don't I I think it's maybe a little bit less than that.

SPEAKER_03 34:43

Yeah, it does seem to have slipped recently. I mean, you've got some of the cases in front of the courts like Bendel and then Section 100A, and then I guess other parts of the anti-avoidance matters. I guess at a high level, from your perspective, do you see that as a sign like the ATO strategy is slipping, or are they kind of testing boundaries to clarify the law, or perhaps just under-resourced?

SPEAKER_00 35:03

I th I think the ATO is fighting the cases that it should, and they're trying to clarify the law. For instance, Bendel started as a test case. I have no doubt that the ATO didn't expect they were going to lose in the AAT, but they did, and then they lost in the Fed court, and then they lost in the full Fed, and now we're in the High Court, and not everybody would have gone to the depth of reading the transcript from the latest High Court hearing that they had. But it was remarkably negative to the ATO, like remarkably, so much so where they had the court adjourned it and set a new hearing date in December for the ATO to go and recollate their arguments because they essentially rejected everything that they had presented. And that's that's not usual. So even in like the 70s, 80s, 90s, from about the start of the 70s, the ATO had a pretty good win rate, except the anti-avoidance cases. That's because the court didn't really agree with how the ATO wanted to enforce the anti-avoidance rules. So they said, no, no, you've got actually a lot more restriction on this than you think. And that was the Barwick court. That the the Barwick court in Parramatta is actually right next to the ATO office, which I always thought was funny. And he basically destroyed the anti-voidance rules in the 70s. Then they came up with a new part 4A in 1981 or 1983 or something. And their win rate started to improve massively from that. And it was pretty high. It's dropping, and I think the two the two main causes the technical ability of the ATO is reducing because that succession planning of that knowledge is not being transferred very well. So, you know, these are people that wrote these laws back in the 80s and 90s, not being transferred to the new generation because people, and even if they are, they're not staying there long enough to see the benefit of it in the tax office. And number two is I think the courts actually don't agree with the ATO as much as they used to. There has been a I I I can't pinpoint when, but the ATO just went from doing pretty well to actually losing a whole bunch of highly technical anti-avoidance cases that they should have won. They made some major missteps in some recent cases. So one of them, just to summarize, I think it was the Milan case, they applied part 4A, the general anti-avoidance rule. And it came down to a question of whether the trustee discretion of paying to this unit, not that unit, was a tax avoidance purpose, a dominant purpose of reducing tax, getting a tax benefit. The ATO had agreed earlier to exclude a certain part of the restructure that happened before from their definition of the scheme. And because they did that, they lost the case. So what they'd actually done, sort of three court hearings before, lost them the case. And that wasn't the only sort of one where the ATU came with, you know, five arguments and then they won on the fourth or the fifth one. Which means that like their primary arguments actually didn't hit. And that's happening more and more, which is really concerning. Because I and I've experienced this in the casework that I'm doing, sometimes seeing some really concerning behavior from an understanding of the law approach. I'm happy to I'm happy for officers to be learning. I'm happy for officers, I'm happy to teach them myself as much as sort of they'll let me, you know, as a obviously a um adversarial party to do that. I'd rather it resolve quickly than be distracted and drawn out. And I just find myself teaching ATO officers about all sorts of things, which is a really hard position to do it from when I'm trying to, you know, fight them about something, you know, respectfully. And I say, well, actually, you don't understand how this works. You know, like people are not very receptive to learning in those sort of circumstances, but even just an understanding of administrative law. Like, for example, I had a case recently where they tried to rely on um on some specific data. And I said, Well, can can I see the data? Can I can I see the evidence? They said, No, we can't provide it to you. And I was like, guys, that's clearly a breach of procedural fairness. I can't even see the evidence you've got against me. Like, you can't do that. And they're like, Oh, we'll get some internal advice. I'm like, Well, what do you mean? Like, this is super basic stuff. Like, come on. They did drop that case entirely, which was which is a good result, but I was mostly frustrated in that I shouldn't have had to have that case at all. It was one of the strangest ones that I've had, and and I've just had those strange experiences. So I just don't think they're as technically sharp as they used to be. And also the court is much more against them.

SPEAKER_03 39:47

Yeah, it sounds a bit like that. I mean, they're not having as strong of a grasp on the tax law and then potentially drifting into overreach, some of the interpretations that like Parliament, you know, they don't agree with, and they were never intended to have. Uh so I think it's very interesting in the public interest to discuss that and to see where the ATO goes from here in terms of I guess their overall strategy and then the this how effective their enforcement is.

SPEAKER_00 40:10

Yeah, yeah. I um I think the law's not going to get any shorter as much as people think that it should. I certainly think that it should. I think the ATO will stick to running the 95% of cases that they do quite well in. And I think they will start to shy away from those highly technical cases because they're just the track record is not going so well. So they'll get less internal backing. If you lose in the court, you lose publicly. If if that's your case, looks terrible. There's not really any way to do it. Like it's it's a big career risk, and just public servants aren't really built for that. And I certainly know there's a few senior officers that have run a few cases and they've failed in a row, and I don't know what happened to them, but it certainly affects their personal reputation in the public service. So I think that that'd be a bit more risk averse on those things.

SPEAKER_03 40:59

Yeah, definitely. That's great. And it and they're kind of sticking to the overarching theme of I guess we've got the shortfall. Let's say we're in practice, like you say, 95% of that is a clear cut and drive, you know, tax avoidance or or whatnot, and sticking to that. So I guess moving a bit more to the granular level around the inside view, we spoke a bit about the data matching program. You know, ATO has one of the largest data matching programs. They've got, you know, as you said, state revenue, they've got you know, banks, crypto, land titles, but then even I think thoroughbred horses, they've got fine art paintings and they've got a few different things. I guess with the advent of AI and then all this data sharing from all these departments coming in, and then crypto and everything. I mean, in your experience, how sophisticated is the system and what are the implications for taxpayers in the coming years?

SPEAKER_00 41:44

Well, yeah, that that data, as I mentioned before, is certainly growing in volume. We know the AC is using AI from the external reports and the ANAO audit reports on them. But just like with you and me, if we're using ChatGPT or Flawed or something, if it's if it's garbage in in terms of instructions, it's garbage out. It doesn't do the job for you. I think what will become more and more important will be the case selection stuff. So case selection used to generally go as somebody you know would identify some risks by running some sort of cross-sectional analysis across the data. And sorry, that can, I better take that cat out of here. They'd run some analysis and that'd say, okay, here's 100 cases that I've determined. People would go and uh do reviews and start, you know, a desk review normally first, assess the data for like, yes, there's likely a risk here, or no, that was a false positive. And if, say, you got through that, then you know you go, okay, well, here's 100 cases using that logic, maybe refined a bit, send it to the case teams to start audits because we know we're gonna have like a 90% strike rate, and then it's reviewed and everything sort of going forward. There's probably a view that um people would have of like, oh, we're gonna have AI agents doing audits and all sorts of things. But the most effective tool that they've had is the nudge program. Do you know what the nudge program is? Is that like the tip-off? No. This is like when you're lodging your tax return and you don't put any capital gains in there, it goes, we know about your crypto. Did you include your crypto gains? And people go, Oh shit. I can spell on this show, I assume. Oh they go, oh geez, what's going on? And then then they suddenly get very conservative. They feel like Big Brother's watching. And they certainly and Big Brother is certainly watching, but that alone was much more effective at collecting tax in terms of reducing overclaimed deductions, where they said, Oh, your deductions are like way more than the usual for your profession. You sure about that? People freak out. And they collect way more tax that way, which is why you know everybody says audit the multinationals, Facebook and Google. They've been auditing the crap out of them for like the last 15 to 20 years and getting some massive wins in court. Now, nobody really. Cares. They're still going to say the same thing. They always knew from the data back even back then that the biggest tax avoiders in this country were individuals. Probably it's followed closely behind by small business in terms of number, in terms of percentage, it's certainly small business. And that tax gap is what they were always targeting in that 15-20-year program. They did the multinationals, they did the high wealth stuff, and now they're coming for you and me because the 5,000 kilometers that people put there by default is just nonsense. You know, when you're working, you're a public servant claiming you'd be 5,000 kilometres per year in your own car. You don't. And that stuff would slip through all the time. And we had everyone at the pub saying, yeah, go to my accountant, because he just puts 5,000 K's on there. And 95% of them slipped through because actually physically auditing them was just too much. There's only about 20 to 25,000 staff at the ATO, I believe. And a lot of those are in the call center. In terms of auditors, I think there'd be less than 5,000. And all those 5,000 auditors, at least half of those are public companies and high wealth individuals. A whole bunch of them would be for you know certain other specific programs. If there's you know 1,500 auditors in individuals, that's probably an overestimation. If each of them can do 200 cases a year, that's not that many tax returns. But enforcement by behavioral nudges, that is massive returns. Stopping people claiming silly deductions. I actually think it was too effective. And what happened is people were not claiming deductions that they were in fact entitled to because they were scared. And that's probably a consequence the ATO isn't too unhappy about. But I know people that were like, oh, I just reduced it down to the average because uh I didn't want to be high risk. Funny thing is, the ATO know when you put it in and then you you change it later, they actually know all the changes that you made. And there there was a guy once who apparently changed like his deduction fields like 160 times to get like the perfect amount and submitted it, and and someone from the ACO called him and said, Mate, why did you change your like why did you change that figure so many times? Because all that data's recorded, which is pretty funny. Because you think it's not, but but it is. But yeah, those behavioral nudges, I think that's they're gonna be the primary use of that data. It's not gonna be hardcore audits. It's gonna be you get a letter in the mail of how'd you buy this this Merc for 100k when your income's you know zero for the last five years. Please explain. There'll be a lot of those.

SPEAKER_03 46:45

Yeah, yeah. It's uh super interesting. Like you said, I've got they've got the data. So if you're renting out your home and claiming, you know, you know, that's your main residence, and then you know, you've got it on the you're collecting a rental bond from New South Wales RBO, then that's uh they give away you've got the behavioral profiles, like you said, income and lifestyle don't match, and then there's the nuttress part. And yeah, you've seen people who click the click tax estimate like 500 times because they're trying to game the system and it's quite easy to do that. I guess do you do you think like the ATO has kind of outpaced its people or the algorithms are only kind of as good as the lawyers interpreting them?

SPEAKER_00 47:20

What do you mean by that, Ryan? So like again, sorry.

SPEAKER_03 47:24

So I guess around the the technology is it's very good at it, but it requires manual intervention and audit and that whatnot. So do you think there's enough do you think the algorithms are as good and set up in order to kind of get the best results in terms of like false positives and then manually reviewing those specific data points or things that pop up?

SPEAKER_00 47:44

Oh, is it the the the case selection stuff? Yes. Uh I don't think that's super efficient just yet. I I I and I don't know that for a fact, but that's my suspicion that that's not super refined. But that nudge program is all automatic. There's no one approving those. That being said, for instance, I've had crypto accounts since 2019, 2020. I only got my first ATO nudge about crypto, I think, in 2024. Which is like, well, that's not collecting all the data. Maybe there was some reason why it wasn't, but I know a lot of people that like years later they get their first nudge. Which is kind of a bit too late. It needs to be sort of a bit more proactive than that. I don't know if the ATO will get really good at case selection. I don't think so. My my bet is they'll actually get worse if they're relying on AI too heavily, then it'll actually get worse. It won't get better. Because like their strike rate is really good on audits at the moment. It's like 90% plus on most audits. They find liabilities. Which is actually pretty concerning that most tax returns in this country are wrong. But they are.

SPEAKER_03 48:59

I've seen those numbers from people in my own platform as well. And like you said, you know, we've noticed the last in a few years are overly high and whatnot. And yeah, I guess you know, they're trying to scare you in the scare tactics. I mean, if it works, that's great, right? It doesn't cost them money and it's automatic for enforcement.

SPEAKER_00 49:14

Very high return. Yeah, but they just be careful, like with the debt side we spoke about before. They can't just go sending out letters to everybody saying you're owed this debt. Because we had that happen before, which was robo debt. And the last thing that the ATO wants is to say, you know, AFR puts out RoboDebt to look at all the people that they, you know, killed by cousin and to commit suicide. Like that would be what happened. So the debt staff is where they're throwing a lot of stuff right now, which is unsurprising when there's so much debt down the road.

SPEAKER_03 49:43

Yeah, definitely. Well, we struck about businesses. Obviously, it's completely different for an entity, but like for individuals, I guess, how does the ATO work within concepts like the RD96 framework of assessing financial hardship and things like that? Are they pretty hardcore and they just kind of bankrupt you, or do they have a bit more leniency like other creditors?

SPEAKER_00 50:00

So they're like in terms of um forgiveness, there there is one provision where the ATO can accept financial hardship and actually just waive certain tax debts or penalties. Maybe it's just penalties I don't quite recall. What I do know is I've actually never been successful in one of those applications. They're almost never accepted. Because the ATO internal sort of informal view was if the ATO is the only creditor, it means they've probably given priority to somebody else. Or they should just go through the bankruptcy process instead, and yeah, let that can take its course. But if that's the views that they're going to take, then they're never going to apply the hardship exemption to anybody. But there was actually a case about it a few years ago because you you can appeal that decision to the AAT, and I only remember the facts very generally, but the fellow was he was older fellow, on the age pension, he owed like 200 grand. And he's he was paying a bit every week what he could afford. And he had no other income, no other prospects to make income. And it was severely affecting his lifestyle. Like the pension's not that much money as it is. But he was not even covering the interest that was occurring every year. And he applied to the ATO for hardship by saying, I'll never be able to pay this debt off. And they said, Well, you've got a house. And he's like, Well, I can't get more debt, I'm not working. The bank won't lend him any money. And uh, you know, it's affecting his ability to put you know food on the table and roof over his head. And those things are the key requirements, but the ATO rejects it because they reject almost everybody for hardship requests. And the AAT actually overturned it and said, no, no, this is hardship. The debt is waived because the AAT can do that. And it's the first case ever on hardship actually being accepted. And it's made it so conceptually it should be more common, but it's still so rarely granted because those debt teams are working like crazy. And if if if someone gets a hint that you can get a hardship request in, then they'll they'll get a thousand of them. And and they're right, that's what will happen. But part of part of their role is to actually administer things properly, is to consider those hardship requests seriously. Right now, if you put one in, it's it's kind of like death by a thousand cuts in terms of paperwork. I had one rejected because they engaged us as lawyers to assist them. And it's it's not an ethical thing to do. But we basically said to them, like, we're not doing this for a fee, we're actually just helping out this sort of friend of a of a client as a favor. Like, they're not paying us, it's just we're helping them through this process. But that shouldn't have been even been a relevant consideration. But it it is very risky to say in legal practice, hey, I'm doing this pro bono, because it kind of feels like a threat. Because it's like, well, they're not paying me, I'll fly back this forever. We're like, no, no, that's not what it is. Like, but they don't have resources to be paying us. But we are not like we are doing this for free and giving them some guidance and letting them sort of use our letterhead. But they they just wanted to find any reason to say no to those ones. So hardship requests are almost certain to fail.

SPEAKER_03 53:12

Well, it makes sense if I'm never selective, I guess, not endorsing that. At a high level, like what does the enforcement look like to individuals? Do they go down the bankruptcy route, stab demands and things on the individual basis, or is it kind of just you know push through the DCAs and kind of just you know let to pressure people through guilt and whatnot?

SPEAKER_00 53:29

It's a lot of it's a lot more social pressure for the smaller end of individual debts, you know, anything under 50 grand, they're not really gonna send you bankrupt for that. They will keep accruing the interest and they will keep chasing you, and they will keep taking the tax return every year. You should go on. Pay it down. So a lot of people have those debts for years. But bigger than that, yeah, they they do. They bankrupt people. Millions and millions of dollars sometimes individuals number their debts. Yeah, they absolutely do bankrupt people. It's a lot of work to bankrupt somebody. It's not cheap. You know, they they pay for external counsel to go to the hearings and do the notices. It's not something that they want to do when there's not enough money on the table to do it. So the ATO still is only using that sort of you know, by a percentage basis quite small. But if it's a large enough debt and they think that there's capacity to pay, then they will they they absolutely will do it. The the ATO is, I think, the most common bankruptcy notice obtainer, is my understanding.

SPEAKER_03 54:29

Yeah, and that's what I've seen. There's all like ATO-initiated court rulings and filings are extremely high, and they've consistently been increasing over the years. So um, that's very interesting. Let's move on to a bit about family trusts. I know you have a strong view that every Australian should have a family trust. They've been part of the tax landscape for decades, but recently there's been changes around rules for distributions, and the ATO has been tightening their stance uh for section 100A and reimbursement agreements. Do you think there are genuine risks for Australians? I guess with these trusts, given they can retrospectively change the tax law, and a lot of people have been, you know, necess they've been making distributions on paper but haven't been transferring the cash. Do people have things to worry about here?

SPEAKER_00 55:08

I think people, if you get a bit too cute with your family trusts, you will very quickly run into trouble. They everybody should have one if they have enough wealth to justify it. Like if you're, you know, got a few million dollars of property and investments and stuff and you have a family trust, you've you've you've got rocks in your head. Because they give you that ultimate flexibility. But there there are so many traps. And 100A is one of them. The ACOs had a very difficult time enforcing it, but it was designed as a very, very broad enforcement rule about making one person paper entitled and then sending the money somewhere else. And it actually came in in um 1981. And it was John John Howard who brought it in. And you should go and read the announcement of this one. They go, Yep, putting this new section in to catch this very particular regime. I forget what I forget what, sorry, very particular scam people were doing. Because that was the golden age of tax avoidance in the 70s and 80s. And they said, Yeah, you have to stop doing this trust stripping thing. And they basically said, if you somehow get around it, we will retrospectively change the law and then come and get you. So, like, just don't. And that worked pretty well. There were no 100A cases, really, for a very long time after it came in. There were a few cases in the early 2000s, there was Ralfland and a few others, which were certainly interesting. Um the ATO did win those cases, but they've thrown them in the few recent cases, and they've lost on 100A and won on part 4A. They won on the general anti-hood and stuff, not this specific reimbursement agreement stuff. The distribution stuff is the other one. The family trust distribution tax has also been there for a very long time. And it's only recently that we're actually seeing a big dirty case about it. They are absolutely archaic rules. But this and this I think this is the case we're referring to, which is a 13 million tax that the ACR owed from family trust distribution tax. Which is basically if you if you opt for your trust to be a family trust, have a family trust election, you can only distribute inside the family group. When you determine that, you have a test individual. So say Ryan, say you're the test individual. Your family group also includes other trusts where you are the test individual. But say me and you are brothers, and we're we're inside each other's family group. So we can like your trust can distribute to me and my trust can distribute to you. But your trust can't distribute to my trust. Because these because that trust is not inside your family group, because it has a different test individual. Now these elections are irrevocable, unchangeable, once off. And in this family trust problem, it was basically that. I think it was a father-daughter situation. So it was the father's trust went to the daughter's trust, wrong test individual. The advisors tried to fix it. They tried whatever they could with the ACO. But there's it's it's one of those things where you know it's black and white. And it's almost always black and white the wrong way, where you know, ATO wins, you lose. And it's caused this thing, and I just don't know how that's going to go in court. If your court throw it out and say there's nothing, you know, you're dead in the water, I wouldn't be surprised. But so we'll we'll really see how that's supposed to go. But these rules aren't new changes. This is the thing. These rules have been there for like 30, 40 years. Like 100A is 44 years old. It's just nobody was thinking about it. I I remember it was it was years ago, I was in private practice for for a couple of years. We had this this this case, and we were talking with uh the accountant, and we were the advisors, and I I raised section 100A. And I was like, well, 100A would sort of you know be a big risk here. This looks like a reimbursement agreement. And the partner was like, What? What are you what are you talking about? And I was like, oh no, the ATO's like interested in this, like this, this is a this is a risk. And you know, finished up the meeting, and this is the only time that partner like you know, pretty much yelled at me and was like, you know, you you shouldn't you shouldn't be speaking in meetings about that sort of thing if you if you're not sure about stuff. And I was like, I'm pretty, yeah, I'm pretty sure about it. Like, sorry, I didn't clear it with you before. And he he was legitimately upset, and I was a bit frustrated by it, but you know, it's fine. He's still a good friend of mine. Years later, when these 100A cases started popping up, he called me and he's like, Do you remember this? I said, Yes, I remember. I remember that very well. And he's like, Yeah, you're you're right, that was that was a risk. It's just nobody was thinking about it. And that's really what it is. ATOs going into their bag of tricks of complex tax legislation, pulling something out and hitting you, then like throwing the book at you. It's gonna happen more and more. I'll give you an example. So we we've got these hybrid mismatch rules, which you probably haven't heard much about. But these are rules to stop multinationals, or generally multinationals, from getting something called double non-taxation. So say you have an expense in one country, which is deductible, and then it's not assessed as income in the other. So like cross-border financing arrangements, you know, using tax havens, that sort of thing. You get a double non-taxation outcome. And that's it's it's it's crazy complicated, this legislation. There's no minimum threshold. There's no like, you know, minimum 1 billion turnover, as applies for most of those large company rules. Actually, that applies to everybody. And it doesn't even apply just internationally, it can apply domestically. And I tell you what, the ACO don't even know how it works. Like there have been no cases on this. And this is like, you know, the the biggest nuclear bomb in the back that they could throw at somebody. And one day that they will. But like you you read it, and this is back when I was studying my master's of science. Uh the this had just come out in the anti-avoidance unit. Of course, the assessment was on the hybrid mismatch rules, which the lecturer described as word salad. And you look at it, and like none of none of the things make sense. The arithmetic, like the the quoted formulas in the legislature, hard-coded, were actually wrong and didn't actually like numerically work. And that rule is just gonna sit there. And I and I think it's gonna be 10 or 15 or 20 years, and they'll go, hybrid mismatch rules says no. And they're gonna go, what the hell is this? No one's looked at this for a decade, but it's there. And this is sort of the the you know, the Kerry Packer problem of you know, when you put in a new law, you should take one away because this is simply too many. There's too many traps. Uh, I'm getting off topic here, but like in terms of family trusts, there is a lot of risk in having a family trust. You've got to do it properly. If you're gonna just chuck a trust in there and pretend like it gives you asset protection and not deal with it the right way, then it's not gonna do that. It's not gonna give you tax efficiency. And uh the only people who win will be the accountants and the lawyers who get to charge you fees.

SPEAKER_03 1:02:09

Yeah, it seems like you've got to be smart, and there's so many hidden landmines, right? The tax law is written to benefit the ATO, and how they choose to enforce it now or retrospectively, or in 40 years, you know, it's not always gonna benefit us. So I guess it kind of kind of goes into your way that you often talk about of having good advisors, be willing to pay them, and ultimately, you know, you get what you pay for, but it's all about tax strategy and forward planning.

SPEAKER_00 1:02:33

Yeah, yeah. And uh like that probably sounds very self-serving when I say that, but like the every person that that comes through the practice, I try and help them out whether they're a paying client or not. And sometimes the best help I can give them is like you don't need to do anything. Like that there is not a lot of value in your tax planning right now, which some it upsets some people. But it's not just about generating revenue for the firm. I I go, yeah, I've got all the answers, you know, put 50 grand on trust, thank you very much, and I give you an answer in five minutes. That's not how it works. It's if I can't help you, then like I'll tell you why I can't help you. Or I'll tell you that like it's just not cost-effective for me to help you. But here's what you should go and do in terms of getting other advisors and asking them these sorts of questions. And hopefully that saves people time. Like most people that walk away from the practice are are appreciative, whether they become clients or not.

SPEAKER_03 1:03:20

Cool. So I guess one of three questions people can be asking to know if they have the right advisor, and they might have accountants or whatnot. I think you've had some pretty good takes on this in the past. So this curious, and then people might be thinking, I've got an accountant, he's okay, he does the bookkeeping, but are they actually giving you the most highest level strategic advice? How would you kind of guide people on that?

SPEAKER_00 1:03:43

I think the best way to cut through that is to ask your accountant or advisor how often they've done something like what you're asking. Some and you know, a good professional, if they haven't done it, will say that they haven't done it. If they think they're capable of it, then that's fine. That's something to assess. But like what I sort of find is like I spend 0% of my time doing tax compliance because I'm not an accountant, I'm not a tax agent, I can't lodge tax returns, I pay someone else to do mine. And if I was doing that all day, every day, that's what I'm good at. But I'm not doing advisory, I'm good at advisory in the areas that I advise on regularly. Doesn't mean I know everything about all those areas all the time, but I know how to piece together the facts, how to analyze them, how to get outcomes. And that includes a lot of areas of tax. Not all of them. There are there are some things that I don't take on because I go, that's not something that I'm interested in or in good app, or there are people that will be able to do this for you faster and cheaper and thoroughly better. One example is payroll tax. Like, I've done enough payroll tax to know that it just always ends in tears. Tax advisory and payroll tax is never good. So I I certainly refer that on. I don't like doing that work. There are some tricks that people do. I don't want to sit there and do it all the time. I I'm not interested in it. And I think that's a very frank and honest conversation. If if a client asks me, you know, how often have you done XYZ, almost all the time I'll be able to say I've done it a lot. If like it's actually a client that I'm dealing with, you know, you sort of attract what you do every day. So if you you ask your advisor, how often have you done this? And if it's if it's advisory that you're looking for because compliance is is you know relatively commoditized now, there are a lot of tax agents out there, say to them and ask them how much of their day is advisory and how much of it is compliance. Because again, you you get good at what you're doing all the time. It's like if you're if you're building fences all day, every day, you'd be pretty good at it. But if someone's like, Hey, can you do some cartridge remote in your cabinet? You go, Oh, well, I could. But yeah, I can do that. Doesn't mean they're very good at it, have much practice. They might be good enough to get it, but it might take them three times as long. They might stuff up materials, pass that cost on to you. Like you don't know that. And I think it's worth being honest with your advisor about what you need. And telling them when you don't think that you want to get a different advisor for that thing. The worst thing you can do is constantly change your accountant. Because they are still usually the number one advisor that people should get. It's very rarely someone like me. I'm one of the extra advisors you bring in for a project or for a serious issue. Once it's resolved, you shouldn't have to talk to me again. For most of my clients. There are some clients that will have issues constantly. And then you know I deal with them all the time, which is which is fine. They always have internal accounting departments or very well-ingrained external accounting arrangements and relationships. That's still the number one advisor. Doesn't mean they're the only advisor. But for tax, it's really hard. So you have to ask them how often have you done this? Because the the you know HR block, high-volume tax return person has the same qualifications as the partner, the big four firm. Many of them do. They're charted accountants. That doesn't mean they know everything about tax. They only know about the stuff they actually work on. That's only two questions. I don't, I can't think of a third one, but I think those ones are pretty good.

SPEAKER_03 1:07:31

Yeah, definitely. And I guess it's it's not really a question, but more out of curiosity, how important is it for say you you know you work on a large business or large projects to have an advisor who's actually dealt with an ATO audit and they kind of know, does that help in terms of I guess how they structure the books and how they kind of preactively and preemptively work on the accounting?

SPEAKER_00 1:07:51

Not really. Like accounting is is a bit of an art form. There are lots of ways to present your accounts that are accurate. The most important thing with those sorts of things is actually the messaging and the availability of information. So you know, if you if the audit starts and put everything at your fingertips, and you can be proactive in setting your position and owning up to risks and making voluntary disclosures, then that'll be the best outcome that you can get with your circumstances. Accountants generally don't deal with ATL audits as frequently as you know dispute specialists. And we and we do a good amount of disputes. There's only so many disputes I can take on at a time and not just like uh lose my ability to sleep at night. So I generally only have about two or three sort of live disputes at a time. I've got one that's been going on for about three years, and it's probably still got another three years to go. So there's sort of that one. So we kind of like take one or two at a time as as they come in, and normally it's no responses to an AT audit. They're generally not so serious, but you can't put the genuine back in the bottle. So if you say something silly or you provide, and this is the worst offender, people provide extra information that they weren't asked to provide. That's when the ATO, what's this? Could they look into it? So, you know, just like you wouldn't call your accountant if you got brought in by the police for questioning, there's a reason why there are people that specialise in ATO disputes, just like the same reason they specialise in criminal law, because while it's technically a civil matter, these are enforcers of law, these are tax police. They're having a look, they're investigating. Yes, you have an obligation to sell them things, and they have legal powers to make you do so. You can't, you know, you don't have a right to silence anymore and have it for a long time. But doesn't mean you shouldn't be careful and you shouldn't be fully advised. So doesn't mean like your accountant is definitely needing to be there, but they are not the only tax advisor that exists. And good accountants, a lot of accounts that I work with, they know that that they know the extent of their limitations. In fact, when they have clients, they go, I'm thinking about doing this, you know, with restructure or something. Well, I'll say, Yeah, that sounds fine to me, mate. Like, go for it. Like, if you want to have a have a look at it, happy to have a you know, one, two hours, just check your advice if you want, that's fine. Because I know that when it gets beyond their capability, they're gonna send it to me.

SPEAKER_02 1:10:15

Okay.

SPEAKER_00 1:10:15

Because that makes their practice better, that makes how they deal with their clients better. Because they go, I know this, Harrison does this, and when it drifts over, they go, It's time to get someone involved who knows a lot about this particular thing. So a lot of our relationships with our you know professional network is we just help back them up when they need it. And sometimes it's an hour, sometimes they don't even charge them for it. Other times they send us you know 200 grand of work in a single client. Both of those happen within the same week sometimes.

SPEAKER_03 1:10:45

Yeah, fantastic. And I guess just to wrap up the ATO whole section, I guess what are the main areas where you think the ATO needs to modernize fastest to keep up with the real economy? I mean, there's crypto, you've got you know the sharing economy and all that. Where is the ATO behind and and where do you think they should kind of align their strategic priorities and focus over the next few years?

SPEAKER_00 1:11:06

ATO are definitely behind on international tax. International tax from an Australian perspective is is remarkably complex. We had Project with the B already, which is which was the big investigations that happened sort of 2010, 2015-ish. And they brought a lot of that income back from overseas into Australia. There are a lot more of those people out there that have either been created in recent years or they don't know, or they've moved to Dubai and then you know leave their family here. All of those are incredible tax risks, incredible, potentially high high return for the ATO as well. But I don't see many international tax audits anymore, unless you're looking at the high wealth individual segment. Um, they're missing out on that, they're certainly missing out on tech. So crypto unregistered things like options and RSUs in companies that can be issued multi-millions of dollars and the ATO isn't notified, there's no public register. There is still a lot of data that they don't have, and I don't think they know that they should be getting it. And the last one is definitely trusts. We still don't have a register of beneficial ownership for trust, it's still a few years away. It'll probably get deferred again, in my view. We're one of the only jurisdictions on earth that still allows for essentially anonymous trusts. So I can register a company that acts as trustee for your trust and gets an ABN, and I'm the director of it. You're the beneficiary of the trust. Your name appears nowhere in any public register. And that's still entirely permitted and in fact very easy. There was an article in the AFR three or four years ago, or I'm sorry, two years ago now, basically saying that there's this you know epidemic of like privacy and private trusts that you know advisors manage for their wealthy clients. You can then, you know, essentially secretly buy property. It's completely illegal. And there are a lot of trusts in this country that I don't think the ATO is even aware of because they don't register for TFNs and don't register for stuff, but it's a document in a lawyer's drawer.

SPEAKER_03 1:13:17

So there's still data they don't have. Yeah, well, so interesting. Awesome. Well, let's move on to the last part of the interview. Um, debank and fintech risks. I guess I found this fascinating. It was several years ago. Um, I'll let you tell the story, but yeah, tell us, you know, about being debanked by Airwall X and how what do those moments feel like?

SPEAKER_00 1:13:37

Yeah, um, well, let me let me uh take you through the the story. I remember it was a Friday afternoon, or Friday early evening, about six o'clock. On the roof of my building, there's actually a a pool and a restaurant in the bar, which is kind of cool. So I was up there with a client, we're having some some beers, and uh I checked my phone, I had this um this this email, and they're like, oh, we've locked your account for some suspicious transactions. And okay, that's very odd. Um, so we used AirWalls for two things for our customer card payments, because it just came out of the box and it worked, which is great, and also for our outgoing payments. So you can issue you know, employee cards, all sorts of things. Tech was great, easy to use, loved it. When I signed up to the platform two years before then, they uh they looked at the website and they were like, it's crypto. And I was like, no, no, no, it's advisory for crypto. And they're like, okay, as long as you don't accept any payments from crypto exchanges or two crypto exchanges, it's fine. And I'm like, sure, that's fine. We're just using it for expenses and stuff, which is what it's built for. So I received all of the crypto payments that that clients may be offering those into you know separate bank accounts. Very suddenly, and like this this happened, suspicious transactions. I asked them what suspicious transactions, none were identified. Said I'm happy to provide any information. I looked at the transactions, there was nothing there that was any different from the previous six months. And there were certainly no crypto-related transactions on there either. And then they said, uh, yep, we're gonna terminate your account. I was like, oh, okay, like whatever. That happens sometimes. There was about$25,000 of client like payments sitting in the in the account. And and they said I will be retaining those those funds in case of the chargeback. And I'm like, okay, like how long? I guess oh we could we can retain them under our Ts and C's for six months. I said, guys, that like less than 40 grand of payments has even gone through the card payment facility over the past 12 months. Why are you keeping 25 grand? And also, as a legal professional, if clients had a cost dispute, they could just go and get a cost assessment, they wouldn't have to do a chargeback. That would be a very inefficient means. If they did that, I would just simply sue them as I'd done the work and I'd want to be paid and all sorts of things. But there was no number to call in Australia, no number. It was emails only. So I emailed to the you know, the people, I I guess they they must see the same family as you know, Madonna or Beyonce, because they all only had first names. And and it was all in very, very scripted. Yeah, you know, I was getting quite frustrated in these emails, and they were using the same pleasantries. It was very odd. So I think this was this was very early sort of script days. This was you know mostly pre-AI. And there was nothing I could do. I went to Afgha, complained, bitched and moaned on the internet. Jack Zhang came and commented, uh, fought with him on the internet. It's fun fighting with billionaires on the internet. I think his public relations team pulled him out because he deleted all these comments shortly after that, which is pretty funny. Um But you know, like I can't even get the comments now because he's deleted them. But he you know, he was saying, like, you're a crypto company. And I was like, We're not a crypto company, we're a law firm. It's like it's like saying I'm a criminal law firm and the bank won't open a bank account for me because I serve criminals. And you're like, yeah, mate, that's a job. Like it's still a legitimate business. Doesn't mean we're committing crimes, doesn't mean I'm trading crypto. And I wasn't, we were very careful, I followed those instructions. And then for to just turn around and cancel the account means yeah, they they can do that. And since then I I've very much changed the way that I run payments at firms. You know, so we we use different providers now, obviously. And what I say to a lot of businesses is that they have you know this potential debanking risk, which most businesses don't, but lots of businesses do, more than more than people would think, is separate out your payments in from your payments out. That that's where we fell into trouble. If I was getting my payments in through a different card scheme, through Stripe or something, I would have had none of those problems. They would have just returned the funds to me. Because my risks were separated. But because I combined my risks, I amplified them. And I didn't know that until I created that problem. And it's not something you think about. So when that account was closed, we only had one bank account left with a big four bank, and yeah, we had a trust account and such. That bank also had my mortgage. It's like, you know, if they debanked me, I'd had a serious problem. And so I actually went out and set up a whole bunch of bank accounts as backup because like if if you can't get paid, you can't operate. What I'm gonna do is say to the client, yeah, give me a give me a cash foot envelope, and then what do I do with it? How do I pay salaries? How do I do, you know, any of those things? And and if the bank do debank you, they can actually require you to refinance your mortgage as well. Yeah, they give you a timeline for that. But you know, say you have to refinance your mortgage in 30, 60 days, like unexpectedly, and get a worse rate, and your payment, your your funds are locked. Like it's it's actually a massive risk. And we we're told, you know, to to trust financial institutions, you know, 250,000 of insurance per account or whatever, and that's great. And there's never been a major bank failure in Australian history, which is great. There's certainly been those overseas, so Australia's got a very well-regulated banking system. But what what's it like the the grim side of it is by having a highly regulated banking system means the compliance cost is immense. So if you've got risky clients that, you know, you know, 80-20 rule, 20% of your customers are probably going to be 80% of your compliance cost, what do you do? You off-board them. Because you can do that. You have no right to a bank account in this country. Uh I know I know of people that have been banned from over 90 financial institutions because that one of them, you know, after about five or ten, one of them accidentally put them on a terrorist watch list. Like by mistake, and they were removed, but they still cannot get the account opened at any of these places. And they can't do things like pay their tolls. The toll company is threatening them, you can't send them cash, you can't write a check. And I believe those tolls are still unpaid because they're like, oh, I there's no way for me to pay you. And they're like, eh, fair enough. Like, I can't stop chasing as well. So like I I think it's a vulnerability that people don't really remember is most people don't remember, is just it's not your money. If if you don't have possession of it, it's not yours. And the alternative, you know, having cash remarkably inefficient. Like the lost people still use cash, but less places are accepting it, you know, easily stolen and robbed. So you're missing a lot of those protections and a lot of those benefits of the digital age, a lot of those requirements of the digital age as well. So like cash isn't a solution either. You know, we've got a gold rush at the moment, people buying bars of gold in Martin Place. That's not a solution either. We don't have gold-backed currency, that's just a speculative asset. The hedge isn't, you know, not the same as it used to be. Really, like self-custody crypto is definitely a big part of the answer to that problem. Because if your only options are store it with a third party or have it in a very inefficient and physical means, they're both bad options. If you've got a third option, which is digital self-custody, as long as you can put those guardrail protections on, it's a much better outcome. And you can't have that airwallets problem where your funds are locked.

SPEAKER_03 1:21:23

Yeah, definitely. I mean, and it's not related to you, like I'm passionate about this topic, and it's surprising how few people actually know about this. I mean, I've seen it on TikTok. You know, there's a lady who got involved with HSBC and another bank, as Combank have sent letters, and then Nigel Ferrari's in the UK got debanked, and that was super interesting to read that and to see the FOI request for his all the information and the reasons they debanked him are to see political affiliations and associations. So I guess from a regulatory standpoint, sure, that a lot of companies say we have commercial discretion to take you on or whatever. Yes, that's true. And while there isn't a universal service obligation in banking to provide a bank account, do you think there's a bit of a regulatory gap in providing access? Because exactly what you said. Sure, they're not required to support you and give you a bank account, but without a bank account, you can't live, you can't pay toll, and you can't do anything.

SPEAKER_00 1:22:17

Well, like I I you know, maybe maybe I'm technically old now. I remember when the Commonwealth Bank was owned by the Commonwealth. And debanking wasn't a problem. You could go and open up a bank account. It wasn't even a thought that there was a risk that you know you couldn't get one open. There were probably fringe society elements, you know, in crime or something where they you know they said we you know we're not going to serve you, you know, Mr. Bikey or something. But that's acceptable if they're known criminals on a list, sure. But when it becomes more about commercial stuff than anything else, then sort of got a problem. Like Ostrack is anti-de-banking. ASIC is anti-de-banking. So Ostrak is I don't know what the hell the acronym stands for anymore, but they basically monitor financial crime, collect data, and banks have a whole bunch of requirements. This is the AML, KYC, you know, 10k cash deposits, give me your reasons, that sort of thing. All that stuff is to do with Ostrak. They're there to collect data and enforce, you know, making sure everybody's providing the data so that financial investigations can happen. AFP, ATO use it, ASIC use it, whatever. Now, if banks aren't taking people on, or they're forcing people to use multiple different banks because of this compliance, I think it's the compliance costs that make the banks make these commercial decisions, then Ostrak is getting much poorer quality data. An example, recently, crypto ATMs, right? You can only put maximum 5,000 into a crypto ATM. So if you want to put 30 grand into a crypto ATM because you're getting scanned, for instance, you know, you're owned lady getting scanned. You've got to go to six different ATMs. None of those ATMs know that you're doing 30 grand. They just know that you've done five grand. So you've actually spread out the risk, making it much harder to detect, and Austrack will get poorer quality data. And it's the same with bank accounts. So if like I do a couple of dodgy things at you know, CBA and a couple of dodgy things at Westpac and a couple of dodgy things at ING, then they're not gonna put the puzzle together very well. Debanking criminals gives our financial regulator worse data for fighting financial crime. And Ostrak know that, and that's why they're saying, like, we don't want you to debank. But these are these are commercial enterprises now. They're that we're gonna debank if it costs us money, like more money than the relationship is worth. Sorry. Yeah, so they have put the commercial decision ahead of any sort of expectation that Australians had about opening bank accounts. And it's the same all over the world. I don't know if you saw Ryan, there was the lady who oh the I think there was a fellow, and he went to Westpac, and he tried to withdraw or transfer money to buy crypto. And they said, no, you can't you can't do that. And he's like, but it's my money, mate. Like, what do you mean I can't do that? It's a legally registered exchange. It's a known asset. I have no other risks. And they just said, no, you can't do it. And they and they sued him. They they sued they sued Westpac for that. Um and I think they dropped the case. But you know, he was gonna buy Bitcoin and they stopped him. Bitcoin goes up, he he like there was there he was gonna make money, conceivably. And the bank wouldn't let him. And the the like the banks being those sort of guardians of the system where they have commercial discretion to remove you for their cost convenience, it's just a bad design. Until there are rules that prevent debank, then it will continue to happen because the red tag's not going to get any less. Government doesn't want to get less data to prevent financial crimes, because Ostrack does excellent work. The AFP use it to you know break pedophile rins, to catch tax avoidance, to catch money laundering schemes, terrorist financing. And the banks are materially getting worse data to that regulator who, like, despite all the annoyances with KYC and means of money laundering stuff, most people go, This is a good thing. We should stop money laundering and crime happening through our banks. But by the banks saying we just don't accept it at all, like people that have those risks, means that the data doesn't make it through. Means it creates more crime. And the system that was designed to cash it is is is now creating the the reverse effects because of other factors in the system. So there must that like the only solution is there must be a requirement that they cannot do that.

SPEAKER_03 1:27:06

Yeah, totally. And I guess in your opinion, at like a regulatory legal level, where do we kind of sit? Obviously, a bit of a complex question, but you've got the AML, CTF, you know, which of course it serves a purpose on what you're saying. I think we both agree to prevent all those things and true crimes and things, that's great. But there's still a carve-out around commercial discretion, things that you said around politically spoken persons, sanctions list, the secret fraud database which bans people from getting a mortgage if they're on that list, you don't know you're on that list and you can't privacy request that information. With all that in taken into account, where do we kind of sit? Do you see we're having a bit of a legal gap where people can get caught out? And do you think regulators could should or step in for these kind of matters?

SPEAKER_00 1:27:47

Well, they they have to step in because the the the system is currently designed to catch you out. AML system. And I'm not I'm not an AML lawyer, but I do run a crypto exchange and a Registered remitter business. So experience enough in this. But it is designed to catch you out. There is no assurance you can really get from Ostrack that you're doing the right thing. It is regular regulation by enforcement, which has always been shown to be a poor regulatory model. So that enforcement means the risk is entirely worn by the financial institution. So like you we've seen like hundreds of millions of dollars of fines go to banks. And it doesn't really phase them that much. They're like, sure. But like essentially it's an aha, we caught you out moment. It doesn't really affect change. Because the the stick is remarkably bad. Just like with the ATO moving to hardcore debt collections, remarkably bad strategy. We go back to it because that's what you know base human or reptilian brain will say, you know, is chase the bad people and they'll stop doing bad things, it doesn't work. Put them in prison, it doesn't work. You know, regulation by giving them multi-billion dollar fines doesn't work either. And that's why there's a whole bunch of you know engagement with industry and whatever. Unless a bank or a financial institution can go to Ostrak and say, we have this high-risk client, we would off hoard them, but you have required that we maintain them, they should then be exempt from penalties on that on notification. Or something where they can get out of that massive financial pitfall. Because, you know, a l a late suspicious matter report, there's tens of thousands of dollars minimum fines, they're quite significant. Unless a financial institution can get that surety and say, you know, we're off we're like, we want to offboard these people, but you won't let us. We now need surety that we're not going to be fined, then they're going to keep offboarding people. Because commercially it's just not worth the risk. Because transactional banking is is not a high profit margin business anymore. There's there's no account fees. It's quite hard to find an account with an account fee in Australia these days. We don't like account fees. So they make it on, you know, FX and mortgages, and that's why these banks are really geared towards mortgages. But kicking them off the platform does everybody a disservice. That's really what it comes back to.

SPEAKER_03 1:30:25

Yeah, and there's that element like you said of you're in just an industry or whatnot, ESG, which I guess that's one side of the which we can understand. But then you've got the other side, which is a perceived political association or police social standing or views. And again, that I don't know if that serves that as we even enforced or looked at within Ostrack, but what do you think that played? Is that just the bank, you know, you know, picking and choosing their customer base?

SPEAKER_00 1:30:47

It's it's a really complex question, that one. You know, there are there are lots of banks that won't serve, for instance, oil and gas companies. And like, you know, putting aside environmental concerns for the moment, these companies are still essential for getting petrol in your car and having enough electricity at the right times. There is still an essential nature to these businesses, and they're very large and they're highly regulated, and there are numerous banks that say we don't touch oil and gas. And there's plenty that say we don't touch tobacco. And that all sounds a lot of people is like, oh, that's a good thing. But like it just means they have less options. It means they have to go somewhere else. Because someone will take them. Um and there's a slippery slope of oh, we don't take bottle shops. You know, we don't we don't take this, that, and the other because they're all low margin businesses. But these are essential products for everybody. So that the the ESG side, I think we need to be very careful with how much of that we push on private industry because it often gets the opposite effect than is intended. It in fact pushes legitimate businesses and legitimate transactions into either more risky operators who are not insured, or into dealing in cash or into you know illicit means to actually run their businesses. I know numerous businesses that cannot get bank accounts, you know, these are international ones. Wise and Revolute don't serve them, Neo banks won't touch them, because neo banks actually have a lower the risk threshold because they're really just like tech platforms built on top of banks with a few licenses, you know, just like Airwalls. The reason we're off board from Airwallet's is they're even more conservative than the Renderly Bank for Australia, which is ANZ. ANZ wouldn't have a problem with with Caden Illegal being a being a customer. But Airwalls does, even though it's really just ANZ on an academic. Unless, yeah, we unless we can get those sureties that those banks will keep people, and that ESG is kept to practical effect, which is very hard to determine. Because by just like not offering accounts, it doesn't really change the the the rocks that we're digging out of the ground and putting in furnaces. It doesn't change that. It doesn't mean that they stop selling tobacco. They're still gonna do it, they're just gonna go to different banks. It's so it's it's sort of an uncommercial practice. People probably won't like me saying all this stuff, will they, Ryan? But I just think we need to be careful because it's it skews it skews commerciality and it skews reality in a way that ultimately doesn't create a better system overall. It just moves risk around, which is a bad thing.

SPEAKER_03 1:33:42

Yeah, and it ultimately doesn't achieve the underlying and overarching purpose. And again, it's interesting this recent news out of the one of those payment sites online about this uh illegal tobacco war going on, and they're saying Westfrag and or not Westfrag, but some of these large big four banks and Zella and all these other ones, they're still taking these merchants in, and they're now saying they're not doing enough to kind of get rid of the illicit tobacco trade.

SPEAKER_00 1:34:05

Yeah, yeah. There's it's an interesting one because illicit tobacco is crime. But a lot of these payment providers, whether they're bank accounts or their you know terminals, you know, at actual tobacco nest shops. How are they gonna know what a customer's paying for? Like when you pay online with Stripe, like they don't know who the hell you are. Visa or MasterCard have identified you, you know, link to the bank account that you're with or Avex or whatever that you're doing. But there's there's actually not enough data sharing. So if I'm spending, you know, a thousand bucks on Stripe buying something and like on a site, but me and that site have a side deal where they're actually sending me, you know, illicit black market tobacco, then Stripe aren't gonna know. How are they gonna enforce that? They add more friction, but adding more friction means people don't use the product. So all the clayment providers are massively against it because that friction on a transactional level is kind of making business impossible for financial services. Just like with the financial advisors and adding in the you know mandatory statements of advice and all this other crap from the Royal Commission years ago. No doubt those things provide some protection to consumers, but they actually provide another thing which is make financial advice much too expensive. And that's been the consistent messaging for a very long time. It's the same with any other industry. If you if you try and put so many blockers on the participants, then either payments get more expensive, which happens in a lot. For instance, in adult payments, so you know, OnlyFans style websites. If you started a, you know, a spicy website like that, you wanted to get credit card payments that probably charge you between five and ten percent. Whereas any other payment provider, you know, might be might be 50 cents, sorry, might be 0.5% plus 30 cents plus interchange, which is you know one to one and a half percent. But because you're high risk, they charge you more. Now them charging you more, does that lower the risk? Oh, really? No, they just charge you more. And it's the same thing with digital currency exchanges getting bank accounts, which I deal with personally. You know, we we have our bank accounts and they're not cheap. You know, this isn't ten bucks a month account fees, I'm telling you, it's a bit more than that. And then we go to other countries and other currencies, and it's remarkably difficult. But just putting blockers on everything, it just hinders stuff. It hinders legitimate stuff at the expense of illegitimate stuff, and you can't just depend on the participants to do it all in the law enforcement system. And I think that's kind of like that's Allstrecht's job is pushing the that that data collection and that regulation to the AML programs and to the payment entities, and ASIC does the same. We can't regulate by enforcement, we can't regulate by making the players enforce. The only way we can regulate, I I think, is by data aggregation between providers and which is is is controversial itself. Banks are going to get access to visa data. They're gonna know what visa people are on and when they leave the country so they can close their account. Because non-Australians, you know, if you're not here as a citizen or on a visa, they don't want you to have an account here. And that they will start shutting it down. If you know you came on a student visa, use it as your bank account, they'll eventually go, Well, you're gone now. So they didn't have that data before. Banks do share financial information indirectly with their fraud reporting. So if they did they do a track and trace report, they go, Well, yep, you know, we think it's a fraudulent funds. Um, you know, here's the reason why. I dealt with the bank personally for my own funds where they they did that. And the bank was required to do a reasonable investigation. And I said, What was the investigation you did? And they go, Well, this bank told us to charge it back, so we just took it from your account. And I was like, I don't even see there with an investigation, not even a reasonable one or any investigation. It seems like you just took their word for it. And they're like, Well, yeah, they wouldn't put it in unless they had their reasons. And I was like, Well, that's not an investigation, mate. That's I don't know what they did, and it wasn't for advantage, and I showed them why. And they were like, That's it's it's done. Not reversing it. Funnily enough, they kept sending me surveys, and I kept I kept saying, zero, zero, zero, fuck you. Eventually the complaint officer got in contact with me and they're like, we'll stop sending you the surveys now. And I'm like, Yeah, that's probably a good idea. But yes, I think the only way really is the data sharing, which is frankly a privacy nightmare. But enforcement and depending on the big players who are commercially motivated to do it for us isn't really working.

SPEAKER_03 1:38:59

Yeah, I definitely agree. There's a bit of regulatory oversight required, and well, you know, understand the financial industry institutions' perspective and Austrap. There also is a commercial angle that needs to be reviewed to ensure that you know people are not stuck out of the system, or there's a lot of these perverse incentives, as we mentioned, around you know, ESG and everything else, which has very far and wide consequences. I guess just to kind of close out on this topic, do you think that like AFCA should have some or there should be kind of an appeals or rights committee to kind of look at issues like this? Because as broad as AFCA is, they also have they don't have the most wide rights when it comes to certain things, even compelling a creditor to offer a debt waiver. Do you think there should be a bit more oversight on that?

SPEAKER_00 1:39:45

Yeah, definitely. AFCA is relatively toothless still, and also extremely understaffed for the amount of complaints they're getting. Complaints have gone up like 5x in the past three years or some ridiculous stat like that. And they just don't have enough actual arbitration power. They've got this, you know, quasi-dispute resolution power. And I've been through more than enough AFC disputes now in that they're they're they're useful and for consumers, and they do an okay job, but clearly the lobbying efforts of the financial services industry have been quite strong to keep those powers limited. They should be able to arbitrate those disputes. They should have full power to do that. They've got massive compensation limitations on them, so they can't offer more than like 16,000 of compensation unless it's you know XYZ or superannuation or something. So, like there are people that no doubt would have lost substantial amounts of money, and then they go to Afgha, and Afgha's like, well, the maximum we can allocate is this anyway. The like I I had a recent experience with Elstrack. Oh, sorry, with Afghar. Uh Afka were were fine. It was the insurance company that I was dealing with. So I claimed for my car, radiator got busted, rock went through it. And they are, you know, like it took I think 19 weeks to replace a radiator. Sure, it was a small town, it was a you know, it was a jag, it was a niche card, difficult to find those parts, whatever. There were there were a significant range of issues of how it was handled. I put in a complaint with the insurer, I got back a generic letter and here's a thousand dollars. I was just like like it actually wasn't that much about the money, like yeah, the money annoyed me, but yeah, a thousand dollars token. I'm like, you didn't address any of my concerns. And it took another like nine weeks after that point to still get fixed. So they weren't taking it very seriously. I went to AFCA and they they said, Oh, okay, we'll give you another$2,000 to go away. You've got, you know, 14 days. Yeah, within 30 minutes, I'm like, nah. Rejected. And then the guy emailed back like an hour later or a day later or something. And and he's like, Because this matter has progressed, we're now gonna offer you a thousand dollars settlement. And I'm like, mate, fuck off. Like, what the hell is this? Like, what? Like, that's that's extremely poor form bargaining power. By saying if you progress the dispute, I'll offer you less. I'm like, that's that's bad faith. If I did that in in a dispute and I said every single day we litigate the offer goes down, that would be like unfair dealing, particularly, you know, an abuse of power, particularly in a situation where they're a massive insurance company, and I'm I'm just a poor little individual, you know, I'm probably yeah, a bit less at risk than others. I'm happy to to fight the insurance company. But I thought that was that was abhorrent conduct, and I actually added that to my complaint. I was like, the way that they're dealing with customers is like frankly bizarre, and like that's bad faith dealing and breach of whatever act I cited. And after all, like, no, that's fine, that's that's completely commercial. And I'm just like, guys, like it just doesn't feel right. It doesn't feel like they have actual fair decision-making power. Because that that absolutely felt unfair. If I if I was doing that to my to people I was litigating with and giving them essentially threatening offers like that of I will only reduce the offer from here, then like that'd take me before the courts. I'd get I'd get a complaint against my vaccine certificate. But the insurance company did it. Apparently it's fine. They also said that the the apparently 20 I sorry 18 weeks, the insurance council has said that any any insurance claim that takes more than 18 weeks is like basically beyond saving. Like you you've well extended the mark of what's reasonable. And Africa wrote back in their response, well, 19 weeks is just over the 18 weeks, so it's just a little bit over. I was like, guys, like the 18 weeks thing was like the end of the rope. Like we're beyond the end of the rope. If we're anywhere near the end of the rope, it should be it should be problematic. But them saying, Oh, it's just a little bit over. I'm like, that's that's just really poor fair. So yeah, Africa are really toothless. Look, they are good for exerting some pressure as a consumer on those financial services companies. The only reason they're good for that is because Africa disputes cost them money. And the further it progresses, the more money it costs them. Hence why I got that dodgy offer. So they are good leverage. So internal complaints would just waste somebody's time. But when you just start an Africa process, it starts to, you know, start a clock of it cost them money. That's the most leverage you've got, is the bottom line.

SPEAKER_03 1:44:29

Yeah, absolutely. It's all about that. And you know, I've I've gone through similar situations with all the telecommunication orbsmen. And I again, I personal opinion, but I feel a lot of these EDR schemes, they give the kind of impression that they're trying to govern themselves to keep the governments off their back, but really there's nothing. And like you said, they kind of just vote down all the reforms for compensation. There's no real legislation legislative power, and then you know, you've kind of got to escalate on what turns like in your situation. You know, it's gone on for years and years and years, and the impact's just never sorted, and then the whole thing's just, I would say, retarded in the so we need more decide on this. Great descriptor.

SPEAKER_00 1:45:05

But there's a reason complaints are up. The complaints are going down, like that's the whole point, is like we should be able to effectively deal with complaints and make sure that they don't get to complaints, but they're not doing that. The legislation isn't doing that. That's why complaints are up substantially. Not because people are just weak.

SPEAKER_03 1:45:20

Well, yeah, that's the thing, and the complaints are up, but then the next step is to say, well, let's look at referring this to the ACMA or whatever the ACMA uh sorry, whatever the AFCA version is for systemic risk, and they say we can't discuss the investigation with you, it's private, but they're all protecting themselves in a lot of the TIO is as a member-based scheme, meaning that the members pay for and it's remunerated. So I mean you kind of question is there is this really like genuine, is there a conflict of interest? And that's in a whole different topic.

SPEAKER_00 1:45:47

Whole different topic.

SPEAKER_03 1:45:48

Don't get me started on ASIC levies or anything like that. That's a whole nother one, too. Awesome. And so I guess last question on that, Toby, for a business who has been debanked or even an individual, what can they do in the first 48 hours besides kind of running to the media and TikTok?

SPEAKER_00 1:46:02

Uh look, like running to the media is is not as effective as it used to be. There's been a few success stories in there where people go and bitch about it, but any business that has debanking happen to them, I think they should immediately be looking to secure their funds. Get them out of that account, consider that consider the account compromised. Like that, there's no point using it anymore. You should have you should already have backups in place. If you don't, you should go set those up immediately. It takes time to set up a bank account for a business. If if it's a company owned by a couple of trusts, which is pretty common, then like you've got to bring a whole bunch of shit to the bank, you've got to get it certified, you've got to get it all sorted. You need you need to be prepared for this sort of thing. You've got to have alternate payment arrangements, even if you're not using them. Bank accounts don't really cost you any money. Um, maybe even 10 bucks a month, like whatever, just like pay it. So that you've got that alternative. And this is especially important if you're in a high-risk industry. You know, if you're a tobacconist or you're a crypto exchange, or you run a brothel, all these are legitimate businesses that are licensed, pay tax, and they can't get a bank account. What are they supposed to do? You need to have backups. You need to have it, you need to have at least two bank accounts at all times. One for receiving, one for paying. If one of them goes down, you can use the other one, and then you can go get another one. But if you have no bank accounts, and this happened to a client of mine weeks ago, they were they were a customer of this bank for over 20 years. These guys were like 23 years old. And they were like, yeah, this bank's great. They they they don't mind our crypto sort of adjacent company. And then they called me and they're like, Yeah, they gave us 30 days to shut down our account with no reason. And they never give you a reason because it generally means a suspicion matter report, which means they can just go, yeah, we're not gonna talk to you about it. But they didn't have any backups. And by not having backups, they would they they were panicking. So just just like you know, you put money aside to pay your bass, just just like you know, you consider how much leave your employees got, you've got to plan ahead with this. Your your payment systems need to be more robust than a single account at a single bank that you've had since you know your mum set you up with a dollar mites account. You've got to have more than that.

SPEAKER_03 1:48:19

Yeah, definitely. I think it's worth raising just for awareness that this debanking problem, it's not a fringe issue. Like it's of course it's not a mass issue, but you've probably known heaps of people, especially in the crypto and fintech space, and there's individuals in Australia and abroad, and these things do happen, so it's wise to be prepared. No pun intended.

SPEAKER_00 1:48:36

It's not just debank, it's even just like transaction denial. So if you if if you're with you know a certain big yellow and black bank, you can only send 10,000 every month to crypto exchanges. If you want to send more than that, like you're you're out of luck. But it's your money. Uh the people goes, but but why can't I do things with my money? You can't. It's not your money, it's in there, it's in the bank. You can just use it subject to their T's and C's. And I think that's why you need multiple bank relationships. I don't think stirring cash under the mattress is is the solution and gold bars isn't the solution. The only solution is in the system, but managing risk. And I wish it was a bit cleaner than that, but uh we are we are sort of working on some interesting ideas with black sheep in how to change this a bit, because we we do believe everybody deserves like access to the financial system. And by keeping people out, it you know it affects productivity, it affects people's individual lives substantially, let alone the the underbanked and unbanked population internationally who don't have the documents to set up banking accounts, they can't transact at all. And there's a whole range of other systems people use because they still have to make it work. But like the banks should have an obligation and a duty to take people's money. Simple as that. Yeah, I love it.

SPEAKER_03 1:49:59

Love it. Focusing on core business. Well, thank you so much for your time, Harry. It was a fascinating channel. I loved all of it, especially the ATO stuff and debanking. But if people want to find you, you know, I know you've got the TikTok where can people kind of uh source you out?

SPEAKER_00 1:50:12

You can go to my website, kadena legal.com.au. Um, you send an inquiry form there, send us an email. My other company, Blacksheep, which is Blacksheep.money, which is expanding sort of relatively rapidly in the next six top months. You'll find me. I'm sort of everywhere. But I'm I'm probably most active on on on LinkedIn and and TikTok. There's only so many social medias one man can fit into his life, I guess. But if you if you look me up, you will find me. Which is nice to say.

SPEAKER_03 1:50:41

Awesome. Well, thank you once again, Harry. I had a great chat with you, and I'm sure the audience will get a lot of value from this.

SPEAKER_00 1:50:46

Thanks for having me on, Ryan. It was a pleasure. Thank you.