The Sunday Telegraph
ran a three page spread over the weekend into the NSW brothel industry under the
headline “Tax
office chases millions”.

readers may recall I wrote about this ATO blitz last month where I detailed how
tax sleuths were chasing girls in brothels.
However Neil Mercer’s expose is inaccurate on two fronts. Firstly he said that, “During discussions with owners,
investigators have said they believe the amount of tax being avoided is enough
to build a new public hospital each year – up to $200 million”. This figure is highly exaggerated as the
ATO last year raised only $9.5m from the Adult Industry Project.

around fanciful figures adds sensationalism to a story but it also provides a
distorted picture of tax compliance in the adult industry. The majority of legal adult businesses are
tax compliant and this is usually on the back of very good legal and accounting
advice. I’m sorry to disappoint the
moral crusaders but yes, the brothels do pay tax!

Mercer also says that the ATO is hitting illegal brothels.
Unfortunately this is also not correct. The ATO’s Compliance Activity
Plan for the Adult Industry clearly stipulates they will investigate
adult clubs, stripping agencies and legal brothels in New South Wales.
While the plan outlines audits for illegal brothels and escort agencies
in Queensland it is only the legal establishments that are getting the
treatment in NSW. Indeed, it is this very point that the recently formed
NSW Adult Business Association (ABA) wrote to the ATO
as part of a long list of grievances.
They said, “The members are also
concerned that the ATO is picking on the more predominant and visible but
normally complying businesses. The
industry is rife with smaller cash operators that seem to be untouched by the
ATO. There needs to be dissemination of
information by the ATO of what actions they are taking to make complying members
more comfortable and willing to promote s-x providers to obtain ABN/TFN and meet
their tax obligations”.

sort of tax administration is this? It
is just not good enough that illegal brothels are put through the cleaners in
Queensland and
not NSW. There is a genuine fear now
that illegal operators will now migrate south to NSW. A major Sydney brothel owner said to me: “They will put
us out of business and push the nice girls onto the street”. Since Adam was a boy the ATO has always
maintained a reputation of chasing the easy targets. The ABA also alleges the ATO and its auditors do
not understand how the adult industry works and they have provided conflicting
advice as to how the GST is to apply.
Since I highlighted shortcomings last
month about the ATO’s GST guidelines for the sex industry, the ATO has attempted to redefine them in a recent meeting with NSW brothel
owners. Many of the auditors assigned to
this project are from the disbanded and discredited Special Audit Division which
was featured by Chris Masters in a Four Corners program in 2003. The same boofheads are now chasing
strippers and prostitutes for unpaid tax, but was it a wise move to appoint such
people to a project like this?

D’Ascenzo needs to overhaul the Adult Industry Project. I wrote to him in April bringing a number of
matters to his attention about deficiencies in the modus operandi of this
project, but he merely flicked it on to one of his junior assistant commissioners
who only last week provided me with an inadequate response. I have referred all matters to Parliament’s
Joint Committee of Public Accounts and Audit.
Unfortunately D’Ascenzo just doesn’t get

Peter Fray

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Peter Fray
Editor-in-chief of Crikey