Background

The Australian Taxation Office (ATO) manages the revenue systems that sustain social and economic policy and funds services for Australians.529 The efficacy with which the ATO collects tax debts may impact upon government policy and services for Australians. Therefore, it is important for the ATO to consider the broad economic impact in doing so, however, the relevant taxpayers’ circumstances should also be taken into account.

Over the last ten years, the ATO has reported an upward trend in total collectable debt,530 with more recent increases being attributed to economic conditions and the ATO assisting viable businesses to stay afloat. In 2012–13, the total amount of this debt was reported as $17.7 billion, with 17.8 per cent of this amount outstanding for more than two years and over 60 per cent owed by small businesses.531

During this period, the ATO has managed tax debts using a number of strategies, including initiatives aimed at improved contact with taxpayers, implementing a Business Viability Assessment Tool (BVAT) as well as using external debt collection agencies (EDCAs) to recover lower–value, non–complex debts. The ATO may take a range of actions to recover debts, from simply requesting payment to firmer actions such as garnishee notices and insolvency proceedings. The ATO may also assist taxpayers to pay their debts through such means as offering payment arrangements and remitting interest and any related penalties.

Despite these strategies, the ATO’s approach to collecting debts has been a persistent cause of taxpayers’ complaints, accounting for 23 per cent of all ATO–related complaints received by the Commonwealth Ombudsman in 2012–13.532

Similarly, during the consultation on the Inspector–General of Taxation’s (IGT) 2014 work program, submissions particularly by individuals, small businesses, their advisers and representative bodies raised concerns with the ATO’s approach to debt collection and the associated costs.

In submissions, stakeholders have asserted that the ATO has more recently taken a firmer approach to debt collection creating additional strain for taxpayers in continuing unfavourable economic conditions. Other stakeholders were of the opinion that the ATO allows debts to accumulate for too long before taking action. They have called for alternative approaches that seek to more effectively manage and reduce the level of overall debt, for example, by earlier and more frequent action which appropriately takes into account taxpayers’ circumstances and compliance costs.

Stakeholders have also questioned the efficiency and consistency of the ATO’s debt recovery and assistance activities, including the reliance on the BVAT to inform such activities. Specifically, stakeholders have expressed that certain debt recovery activities were disproportionate and had broader impact. Examples of such activities included insolvency proceedings commenced against viable taxpayers, garnishee notices that exhausted bank accounts and concurrent debt recovery action which impedes challenges to the underlying assessments.

Certain ATO communications were also perceived to be ineffective or otherwise intimidating in relation to the potential consequences of non–payment and inadequate in terms of the potential ATO assistance which may be available to taxpayers to pay their debts.

Stakeholders have also made representations that some debt collection activities involved inaccurate ATO information and they faced difficulties in having such information corrected by the ATO. They have further asserted that the ATO may not be making the best use of information that is available to them from other sources such as the Australian Securities and Investments Commission.

Another major source of dissatisfaction for stakeholders was the ATO’s use of EDCAs. Concerns were expressed that taxpayers were unable to engage with the ATO once a debt had been referred to an EDCA for recovery. The appropriateness of EDCAs’ security arrangements for taxpayer information as well as the former’s conduct and communication were also raised as concerns.

The IGT will conduct this review pursuant to subsection 8(1) of the Inspector–General of Taxation Act 2003 (IGT Act) and welcomes your input. The following terms of reference and guidelines are provided to assist with the preparation of your submissions.

Terms of Reference

The IGT review into the ATO’s approach to debt collection will focus on:

  1. The ATO’s strategies to manage tax debts, including those targeted at:
    1. reducing the amount and age of total debt;
    2. better managing compliance activities and disputes to facilitate expedited collection of undisputed debt;
    3. accounting for and reporting on disputed debts; and
    4. anticipating debts that are likely to arise and taking appropriate action to recover debt efficiently whilst being cognisant of taxpayers’ circumstances.
  2. The structure and design of the ATO’s debt recovery and assistance initiatives.
  3. The proportionality, consistency and effectiveness of the ATO’s debt recovery activities, including its use of:
    1. garnishee notices;
    2. director penalty notices;
    3. departure prohibition orders; and
    4. insolvency actions.
  4. The appropriateness and consistency of assistance that the ATO offers taxpayers including:
    1. payment arrangements;
    2. remission of interest and penalties;
    3. debt release for serious financial hardship; and
    4. decisions not to pursue tax debts.
  5. The appropriateness and consistency of ATO communications regarding tax debts.
  6. The accuracy of ATO information relied upon and the means to correct that information.
  7. The ATO’s use of third party debt collectors.

    The IGT may also examine other relevant concerns raised or potential improvements identified during the course of this review.

Submission Guidelines

We envisage that your submission will set out your experiences and views on the ATO’s approach to managing tax debts.

It is important to provide detailed accounts of your experiences with the ATO approaches to managing tax debts which have had an impact on you. In this respect, it would be useful to provide a timeline of events outlining your key interactions with the ATO including key correspondence, the issuing of final notices and other ATO notices and the outcomes of any disputes. As far as possible, these approaches should address the terms of reference above.

In addition to your views on potential improvements, we are seeking examples of ATO approaches that have contributed to positive outcomes.

The following questions may assist you in your response.

The ATO’s approach to managing tax debts

Q1. What are your views on the ATO’s approach to managing tax debts?

Q2. How can the ATO better reduce the level of debt whilst taking into account taxpayers’ circumstances and the broader economic impacts? Please explain your views.

Q3. How can the ATO better anticipate debts that are likely to arise and what action should it take? Please explain your views.

Q4. What factors do you think should be relevant for the ATO to consider when differentiating its debt collection recovery and assistance activities between taxpayers?

Q5. Have you had experience with the ATO’s debt collection activities (either as a taxpayer or as a representative of a taxpayer)? For example, garnishee notices, insolvency proceedings or director penalty notices. If so, please provide a detailed account of your experience, including:

  1. a timeline of key events and a description of the actions taken by the ATO;
  2. your views on whether these ATO actions were appropriate and commensurate with the circumstances and the risks to the revenue;
  3. the impact that such action had on the taxpayer, its clients and creditors;
  4. how effective was the ATO in communicating the tax debts and engaging throughout the process to understand the taxpayer’s circumstances, such as engaging in alternative dispute resolution in relation to disputed debts;
  5. how effective was the ATO in communicating the tax debts and engaging throughout the process to understand the taxpayer’s circumstances, such as engaging in alternative dispute resolution in relation to disputed debts;
  6. the accuracy of the ATO’s information regarding the tax debts and, if information was inaccurate, how the ATO resolved these inaccuracies; and
  7. the nature of any assistance the ATO made available in paying the tax debts and how the ATO determined what assistance to provide (for example, payment arrangements, interest remission or debt release for serious financial hardship).

Q6. If you were a creditor to a taxpayer who was subject to ATO debt collection activities, what was your experience? Please explain your views.

Q7. If you are a tax practitioner, what are your views on the consistency with which the ATO collects debts and offers assistance? What are your views on the consistency with which the ATO’s third party debt collectors collect tax debts?

Q8. Do you have suggestions for how the ATO could improve its debt recovery and assistance processes? Please explain your suggestions.

Q9. Have you had experience with a tax debt that was referred to a third party debt collector? If so, please provide a detailed account of your experience and your views on the matter, including:

  1. their conduct in managing the matter;
  2. the accuracy and security of information held about you; and
  3. the nature of any interactions you had with the ATO at the same time.

Q10. Do you have suggestions for improvement in relation to the ATO’s arrangements with third party debt collectors and related debt recovery processes? Please explain your suggestions.

Other

Q11. Are there any other areas on which you would like to make submissions? For example, you may wish to cite international experiences or comparisons which you believe would lead to improvements.

Lodgment

The closing date for submissions is 18 July 2014. Submissions can be sent by:

Post to:
Inspector–General of Taxation

GPO Box 551

SYDNEY NSW 2001

Email to:
debt@igt.gov.au

Confidentiality

Submissions provided to the IGT are in strict confidence (unless you specify otherwise). This means that the identity of the taxpayer, the identity of the adviser and any information contained in such submissions will not be made available to any other person, including the ATO. Sections 23, 26 and 37 of the IGT Act safeguard the confidentiality and secrecy of such information provided to the IGT — for example, the IGT cannot disclose the information as a result of an FOI request, or as a result of a court order generally. Furthermore, if such information is the subject of client legal privilege (or legal professional privilege), disclosing that information to the IGT will not result in a waiver of that privilege.


528 Ibid.

529 Australian Government, Australian Taxation Office .

530 Australian Taxation Office (ATO), Annual Report 2003-04 (2004) p 42; ATO, Annual Report 2012-13 (2013) p 39.

531 ATO, Annual Report 2012-13 (2013) pp 35, 39-40.

532 Commonwealth Ombudsman, Ombudsman 2012-2013 Annual Report (2013) p 56; Commonwealth Ombudsman, Submission No 1 to House of Representatives Standing Committee on Tax And Revenue, Parliament of Australia, Inquiry into the Australian Taxation Office Annual Report 2012-13, 31 January 2014, p 5.