The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) has issued a report into the ATO's enforcement of debt recovery. In a press release, the ASBFEO called for the ATO to immediately cease debt recovery action where tax disputes were before the Administrative Appeals Tribunal (AAT).
The report contains three key conclusions:
- stronger forms of debt recovery (ie garnishee notices, director's penalty notices and statutory demands) can directly cause the failure of a small business;
- ATO debt recovery action needs to be exercised in a proportionate, fair and consistent manner; and
- the ATO does not engage with small business in the same ways that it expects small business to engage (ie debt recovery processes need to be considered using a "small business lens" and interactions should be "far more tailored and nuanced").
The report contains seven recommendations:
- small business must be able to seek a stay order of any ATO debt recovery action when before the AAT. The AAT can generally hear applications for stay orders from parties in non-tax matters, seeking to prevent the practical implementation of a decision being disputed, but this is not the case for taxation decisions;
- garnishee notices must have mandated external oversight and approval – currently the ATO alone has the authority to produce garnishee notices without any external oversight;
- other forms of security should be used instead of garnishees;
- settlement deeds for matters before the AAT should be published by the AAT;
- the ATO must offer the range of internal dispute resolution options and have small business acknowledgement before legal recovery action commences;
- for any small business tax debt (disputed or not), adequate opportunity must be provided to pay, aligned with cash flow of the small business; and
- the ATO should continue and expand its current independent review process for small business after the pilot program finishes.
The ASBFEO also reminds small business taxpayers in dispute with the ATO of its Small Business Concierge Service, which started on 1 March 2019. This service provides legal assistance for AAT appeals for a limited cost..
The ATO issued a press release outlining its response to the report stating its ATO's long standing policy on debt recovery for cases in dispute at the AAT is to only pursue disputed debt in "exceptional circumstances" and that there are only ''very rare cases'' (for example, in 2017-18, it took garnishee action against small business in just four cases). However, it should be noted that this formed the basis of the ATO's submission to ASBFEO. The report concluded that "evidence gathered by our Office, combined with that in IGT reviews appears to contradict this". The report states that ASBFEO found:
- 127 incidences of heavy handed practices;
- 98 incidences of issues with timeframes and processes of decision making; and
- 29 examples of the use of garnishee notices.
The ATO further stated that it will give consideration to the report's recommendations while it awaits the Australian National Audit Office's review of how the ATO manages tax debts for small business.
There does seem to be a significant difference in views between the ATO and the ASBFEO when it comes to the extent of the problem. The ATO says that there are some 3.8 million small businesses in Australia, who collectively owe some $15 billion in tax debt (two-thirds of all debts owed). Presumably, it is to be expected that there will always be some degree of dysfunction at some point to some taxpayers – but obviously the aim is to have systems in place that keep this to an absolute minimum.
Of course, it is not possible for each small business to have its own ATO case manager, but if it were, it would overcome one of the frequent complaints to the ASBFEO involving contact and follow up. Currently, ATO telephone numbers show up as a ''private number''. If no voicemail message is left, the taxpayer cannot return the call. If the taxpayer then contacts the ATO, their call is placed in a queue for a long period and the taxpayer must wait for an ATO staff member to familiarise themselves with the filenotes and/or start their discussions again. As the report concludes: ''anonymous calls, long wait times and repeated conversations of distressing situations do not assist a small business (nor the ATO) to resolve disputes in a timely way''.