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Taxman cleared of garnishee ‘cash grab’

AUSTRALIAN BUSINESS REVIEW   March 13, 2019   Ben Butler

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

In a report released yesterday, acting Inspector-General of Taxation and Taxation Ombudsman Andrew McLoughlin made four recommendations to improve how the ATO uses garnishee notices and deals with small business, all of which have been accepted by Tax Commissioner Chris Jordan.

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

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

In April last year ABC TV’s Four Corners program aired the “cash grab” allegations, together with other allegations, including that the ATO rated staff on how much money they collected.

An ATO whistleblower featured in the program, Richard Boyle, was last month charged with 66 offences and faces years in jail if convicted.

ATO deputy commissioner responsible for small business, Deborah Jenkins, welcomed Mr McLoughlin’s report.

“We’ve already started to improve in these areas,” she said.

She said ATO staff were well aware of the impact garnishee notices could have on small businesses. “Life is tough enough for small businesses,” she said. “Tax is not their first priority.”

Mr McLaughlin said the 2016-17 financial year had been an “annus horribilis” for the ATO, with IT disasters and other “significant unexpected events” reducing the number of garnishee notices by 40 per cent compared to its work plan.

He said the garnishee woes began with the postponement of a new system called Activity Statement Financial Processing, which was supposed to integrate two different tax accounting systems, in November 2016.

This cancellation caused “shortfalls in outcomes”, ATO managers said at the time.

IT outages in December 2016 and early February 2017 made things much worse, leaving debt collections $418 million behind where they were expected to be by February 8, Mr McLoughlin said.

His report shows the Adelaide office issued a “substantially higher” proportion of ongoing garnishee notices to banks between May and September 2017, peaking at more than 40 per cent of notices when the ratio for other offices was below 10 per cent.

The Adelaide office “misunderstood” a benchmark used by the ATO to measure output “as a performance measure”, he said.

However, by September 2017, the ATO had taken action and the Adelaide office was moving back into line with the other offices.

Mr McLoughlin downplayed as “ironic” an email a team leader sent to a dozen workers in the Adelaide office at the end of the working day, saying that the “last hour of power is upon us … That means you still have time to issue another five garnishees”.

“The facts and evidence indicate that this could not have been intended literally” because it would take an average of 25 hours of work to issue that many notices, he said. “It is possible, however, that the comment may have been misunderstood …”

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