‘Cold-blooded’ ATO needlessly withheld refund from vulnerable taxpayer
The ATO’s wrongful advice to a taxpayer at “immediate risk” of homelessness was called out in a recent IGTO report into the Tax Office’s “disappointing” debt collection processes.
A recent IGTO investigation found the ATO had unnecessarily refused to release a tax refund to a taxpayer facing “a serious and immediate risk of homelessness.”
The Tax Commissioner elected to offset the individual’s tax refund to service old debts despite being aware of the taxpayer’s “serious financial hardship.”
On at least seven occasions, the ATO told the taxpayer it could not refund the amount since he had entered into a payment arrangement after the income tax credit had been posted. He missed this cut-off by one day.
The IGTO investigation surfaced internal ATO OPAL advice which acknowledged the advice given to the taxpayer was wrong. The Tax Commissioner had discretion over whether to withhold the tax refund up until a notice of assessment was issued.
Following receipt of the advice, the deciding officers nonetheless maintained their position, citing the taxpayer’s history of “compliance issues.”
According to the IGTO, these issues consisted of one adverse audit to which the taxpayer intended to object once he was in a suitable financial position. This intention was known by the ATO.
“The deciding officers denied the request by placing great weight on one compliance issue … but only gave a brief reference to the demonstrated hardship claim,” said the IGTO.
The ATO only reversed the decision following “urgent discussions” between the IGTO and senior ATO officers. The taxpayer has since been granted his tax refund.
Inspector-General of Taxation, Karen Payne, told Accountants Daily the example highlighted an area where the ATO can “clearly improve administration, even if you can’t magically … make debts disappear.”
“Not only did they not allow them to access their refund, not only did they automatically offset, they didn’t even turn their mind to whether or not they should have released that person from the debt because they were presenting with serious hardship,” said Payne.
“Don’t just do it because you think the law says you must collect the debt,” she warned the Tax Office.
This case study was just one among many in the IGTO’s recent How to Tell People They Owe the Government Money report, which the ATO yesterday said it welcomes.
The report was prompted by the ATO’s re-activation and offsetting of “very old debts”, many of which had been relaxed over the COVID-19 pandemic, said the Inspector-General.
While it was addressed to all government agencies responsible for community debt collections, the occasion for the report and the brunt of the case studies revolved around ATO conduct.
Of the broader pattern of ATO debt collections, the IGTO report said the Tax Office’s conduct was “disappointing.”
“Such issues may have been mitigated if the ATO had regard to the lessons previously learnt,” it added.
Those lessons include recommendations made in a 2009 Ombudsman report which advised the ATO on how best to improve its communication with taxpayers around debt write-off and re-activation activities.
The ATO sent around 200,000 letters advising people they owed tax debts – some of which were for no more than a few cents.
According to the IGTO, many claimed these letters did not specify how or when the debts were incurred, which complicated the verification and challenging process.
Further, given the age of many of the debts, targeted individuals often no longer had relevant records. In response to the concerns, the ATO ceased writing these letters and undertook a review of its approach to debt communication.
Andrew Wilkie MP referred to the ATO's automated debt collection processes as "cold-blooded," urging the government to legislate time limits on debt collection activities.
"The ATO should have learned from previous reports ... and ensured they avoided unnecessary distress and harm when re-raising these aged debts," Wilkie added.
The IGTO report sang a similar tune, stating, “Agencies should have regard to current and past observations and recommendations of oversight bodies."
“Don’t just re-commit past failings! The community is entitled to expect agencies to have a corporate memory.”
