ATO defends its debt recovery approach

The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) has called on Australian Taxation Office (ATO) to immediately cease debt recovery action against any small business with a dispute before the AAT, following research into the area. 

Responding to ASBFEO’s concerns, the ATO defended its approach and expressed its concern that Australian small businesses may be alarmed by the report. 

"Of the 108 small business cases finalised in the AAT in 2017-18, there were only 17 cases identified where some type of debt recovery activity occurred. We took garnishee action in just four cases, and pursued debt in other ways (for example a letter or a call) in a further 13 cases," Chris Jordan, Commissioner of Taxation, said. 

Mr Jordan referred to these figures as "low", noting that there are 3.8 million small businesses in Australia.

"These are cases that went to the AAT, and as such have unique characteristics that do not reflect the broader small business population," Mr Jordan pointed out, adding that small businesses owe $15 billion in tax debt, which accounts for almost two-thirds of all debts owed. 

"This is growing year-on-year and we have a legislative responsibility to collect tax debt," Mr Jordan added. 

"When a customer of a small business pays GST on a purchase, or when an employee of a small business sees income tax withheld from their pay packet, it is our job to ensure that the tax is passed on, as this was never the small business’ money."

In 2017-18, of the cases that went to the AAT almost $5 million was owed by the four taxpayers who were the subject of a garnishee while before the AAT. This includes one taxpayer who alone owed almost $2.5 million in tax debt. 

The ATO defended its approach, adding that it reflects the office's long standing policy on debt recovery for cases in dispute at the AAT.

"For instance, where there are links to organised crime, phoenixing, evasion or other fraudulent activity, or where we have evidence of the taxpayer dissipating assets or transferring funds to frustrate collection of tax. In some cases we may pursue a component of undisputed debt while a separate disputed component is before the AAT," Mr Jordan explained. 

Despite its worries that the ASBFEO's report will cause panic among the small business community, Mr Jordan said the ATO will consider all seven of the Ombudsman's recommendations, in the context of its role in finding the balance between ensuring it supports honest businesses exercising their dispute rights, while not rewarding deliberate non-compliance.