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Australian Taxation Office lashed over handling of disputes

AUSTRALIAN BUSINESS REVIEW   April 29, 2019   Perry Williams

Australian Small Business and Family Enterprise Ombudsman Kate Carnell. Picture- AAP.

The Australian Taxation Office has been savaged over its treatment of small business amid accusations it used excessive means to recover debts even when tax disputes were being appealed.

Australian Small Business and Family Enterprise Ombudsman Kate Carnell called for the ATO to immediately cease debt recovery against any small business with a dispute before the Administrative Appeals Tribunal after finding debt recovery still took place in 12 per cent of cases before the appeals body.

To recover tax debts from small businesses the ATO issues garnishee notices to people who owe the taxpayer money, or banks that hold their accounts.

The notices compel their recipients to make one-off or continuing payments to the ATO.

But Ms Carnell said in a report released today that the ATO had overreached with its actions, which could cripple the ability of a small business to prosecute its case and keep trading at the same time.

“Strong forms of debt recovery action by the ATO, such as garnishee notices, can destroy a small business because it effectively strips funds from a small business’s bank account,” Ms Carnell said.

“Consequently, the small business is not able to pay wages, rent, suppliers or bank loans and the follow-on effects of this — bad reputation, no credibility and potential bankruptcy — are significant.”

The ATO chased debts from small businesses in 17 of 143 AAT matters and Ms Carnell stressed debt recovery action needed to be proportionate, fair and consistent.

“Although departure from policies and procedures may not be deliberate, small business cannot always rely on consistent and predictable treatment when there is a tax debt involved, and the consequences can be severe,” she said.

“Immediate action to improve ATO approaches is critical since heavy-handed enforcement action, such as a garnishee notice, effectively freezes a small business’s bank account and can … mean the end of that business.”

In April last year ABC TV’s Four Corners program aired allegations of “cash grabs” and heavy-handed tactics, including that the ATO rated staff on how much money they collected.

An ATO whistleblower featured in the program, Richard Boyle, was charged in February with 66 offences and may face years in jail if convicted.

The ASBFEO and Taxation Ombudsman were tasked with conducting inquiries in the wake of the revelations by former financial services minister Kelly O’Dwyer.

A watchdog last month cleared the Tax Office of allegations it conducted a “cash grab” using garnishee notices in 2016-17, finding instead that an IT meltdown was partly to blame for inappropriate use of the mechanism in its Adelaide office.

Acting Inspector-General of Taxation and Tax Ombudsman Andrew McLoughlin made four recommendations to improve how the ATO uses garnishee notices and deals with small business, all of which were accepted by Chris Jordan, the Tax Commissioner.

The ASBFEO issued eight recommendations including the right of a small business to seek a stay of order of any ATO debt recovery action when it’s before the AAT, and introducing external oversight and approval of garnishee notices.

It also called for any small business tax debt — whether disputed or not — to be able to be paid in line with the cash flow of its business.

“A solution is for clear and open communication between the ATO, the small business and their professional representatives to arrange a payment plan.”

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