ASBFEO calls on ATO to cease debt recovery action against small business

The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) has researched the issue of debt recovery action taken by the Australian Taxation Office (ATO) against small businesses while their application for review of a disputed matter was before the Administrative Appeals Tribunal (AAT).

The ASBFEO found that ATO debt recovery action happens in a sizable number of cases that are before the AAT (at least 12 per cent) and that such action can severely impact a business’ ability to prosecute its case and carry on its business. 

This is especially true when the first knowledge of a garnishee notice is the bank not honouring payments such as wages, rent, suppliers’ invoices or even loans, the ASBFEO found. 

Commending this finding, Ombudsman Kate Carnell has called for the ATO to immediately cease debt recovery action against any small business with a dispute before the AAT.

"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’ bank account," said Ms Carnell. 

"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 – is significant."

Despite the devastating impact on small businesses, Ms Carnell explained that the ATO alone has the authority to produce garnishee notices without any external oversight.

"ATO garnishee notices must be actioned only with appropriate oversight and approval, such as the court system, before an order can be issued," Ms Carnell said.

"The asymmetry in power between this large and powerful organisation and the small business sector has left these particular small businesses in a vulnerable position and with diminished access to justice. They simply don’t have the same resources to fight where there is a legitimate dispute."