Behind the curtain: ATO in the spotlight

All too often, complaints from clients about the conduct of the ATO that led to their financial ruin are shrugged off or dismissed. It is far easier to believe that the ‘ATO would have got it right’ or that ‘the ATO would not have taken the action it did without a proper basis or even that ‘there are so many checks and balances the ATO can’t be wrong’. I used to have all those thoughts, but I was wrong.

Six years ago when I first took on the ATO seeking compensation for a client that claimed to have been the victim of wrongful conduct and false allegations of fraud that led to the collapse of her IT company, the flight of the angel investors’ capital and personal financial ruin at the hands of the ATO, I had all of the above thoughts running through my mind.

However, after believing the client, utilising some of the limited  rights available to the taxpayer, my client received a formal written apology from the Commission of Taxation and a sizable award of damages. That compensation was not sufficient to replace the lost years of blood sweat and tears that she put into building the business nor was it sufficient to restore her to the position she would have been but for the wrongful conduct of the ATO – but it was something.

There have been other claims against the ATO since then but after peering behind the ATO’s curtain, I never had those same thoughts again. Such claims are ordinarily settled well outside the spotlight of public scrutiny and fiercely guarded by deeds of settlement with robust confidentiality clauses.

Rarely is the ATO’s conduct put on public display like in the very recent judgment delivered by His Honour Justice Smith in R v Clarke (No 9) [2025] QSCPR 17.

In the judgment, Smith J critiqued various actions of the ATO and their officers, suggesting misconduct and improper behaviour throughout the course of the investigation and prosecution of the case. Despite suspicions of fraud, the audit team misled the defendant about the interview’s purpose, which was primarily to question them about alleged fraud—a criminal offense. The court determined that the defendant was unlawfully subjected to a hybrid audit/criminal interview, thus undermining their fundamental right to silence.

Moreover, Mr. Rains an ATO Officer and key figure in the investigation, was found to have engaged in multiple instances of misconduct. This included ignoring legitimate expenses, failing to disclose crucial meetings and documents, altering documents, preparing false statements, and providing misleading information to judicial officers. Smith J concluded that the conduct of the ATO and its officers not only undermined the administration of justice but also had the tendency to bring the court’s integrity into disrepute. The judgment emphasised that such conduct amounted to oppression of the defendant and warranted a stay of the prosecution.

A selection of the more critical and damning quotes from Smith J’s judgment:

“[10] Despite the suspicion of fraud, Mr. Challans from the audit team told the defendant that the interview was to ‘clarify gaps’ in the evidence relating to her R&D application. As will be discussed, I find this to be misleading.”

“[11] A meeting was held between the audit team and the crime team on 22 January 2018, the day before the compulsory interview was to commence. It was agreed at this meeting that the audit team would question the defendant as to the alleged fraud and would then meet the crime team after the interview concluded to discuss the matter and the interviews.”

“[13] …the court finds that the substantial purpose of the interview was to question the defendant about the alleged fraud – a criminal offense.”

“[15] The court concludes that the defendant was unlawfully subjected to a hybrid audit/criminal interview because the audit team did not have the power to investigate a breach of the Commonwealth Criminal Code as agents of the crime team, or at all, and the crime team did not have the power to compel the defendant to answer questions put to her concerning the criminal matter. The court concludes that this undermined her fundamental right to silence.”

“[18] He deliberately altered JV052 by leaving off words that the expenses had been approved by the Board and gave the altered document to the QPS, thus undermining the defence of the accused.”

“[23] In summary, the court finds that the conduct of the ATO has brought the administration of justice into disrepute and has the tendency of undermining the integrity of the court.”

“[100] The court would accept, on the balance of probabilities, Mr. Rains deliberately altered the document to support the fraud case against the defendant.”

“[254] I accept the defendant’s evidence in the following respects: (a) That Mr. Rains dishonestly claimed in his statements that the defendant claimed to have invented DBH and that Ms. Ivar’s statement was deliberately misleading. (b) That Mr. Rains provided misleading information to the Queensland Bar. (c) That Mr. Rains caused the false Akeroyd statement to be on the brief of evidence. (d) Crucial words on exhibit JV052 were deleted by Mr. Rains on the exhibit used for the court. (e) All the BA emails were not disclosed until after the State charge was discontinued. (f) That Mr. Rains was instrumental in the State fraud charge prosecution and investigation. (g) That exculpatory evidence was not included in the ATO brief.”

“[1714] I accept the defendant’s submissions. I find that this is a lie by Mr. Rains to bolster the case against the defendant. I find he deliberately avoided disclosure of some of the documents which undermined his allegation before the State fraud trial.”

“[1764] The CDPP submitted that the alteration of the exhibit was a mere printing and scanning mistake. The defendant submitted the alteration was manufactured and deliberate. I accept the defendant’s submissions.”

“[1773] The CDPP submitted that I could not exclude mistake. I reject this. I find that Mr. Rains’ explanation before me concerning the printing was a recent invention. I find that the deletion of the words was done deliberately by Mr. Rains.”

“[1775] To produce the exhibit without those words undermined the defense case and strengthened the crown case. This is very concerning indeed.”

“[1778] Again, I note Mr. Rains did not provide an affidavit swearing as to this matter before me. I conclude this was no oversight. I find it was to avoid being pinned down to an explanation on this issue.”

“[1780] I accept the defendant’s submissions [regarding lack of timely disclosure].”

“[1903] They were not insignificant breaches. The failing to keep appropriate records has deprived the court from checking on the accountability of the ATO in its approach in this matter. Mr. Rains admitted that he had read AGIS. These breaches were not through any lack of knowledge on his part. I did not accept the CDPP submissions they were just an error. There are too many for that. I consider his lack of record-keeping deliberate and to avoid later scrutiny.”

“[2003] I find that much of the misconduct I have found also relates to the investigation for the ATO fraud charge as the BA witnesses and information is being used in that case as well. It is of particular concern that a number of judicial officers have been misled by false statements, affidavits, and submissions—all due to the conduct of Mr. Rains.”

“[2071] I find that this conduct offends the integrity and functions of the court, particularly so when I consider some of this false evidence was relied on at both committals and is proposed to be relied on at the trial. A stay should only be ordered in an exceptional case. I find this is such a case.”

The takeout from this post is to not dismiss a client’s complaint about the ATO or make the mistake of assuming the ATO got it right. Take action and hold the ATO to account. If you don’t know where to start, reach out I am happy to point you in the right direction.

A full copy of the judgment can be found here: https://www.queenslandjudgments.com.au/caselaw/qscpr/2025/17