The treatment of businesses engaged in legal disputes with the ATO will be scrutinised by the small business ombudsman in a review of debt recovery practices announced by the federal government.
The probe will examine the effect of debt recovery on small businesses which are pursuing tax disputes through the Administrative Appeals Tribunal (AAT).
Currently, the tax office is able to recover unpaid tax debt at any time, including when there’s an active dispute in progress over that debt, although the ATO rarely does this.
Australian small and family enterprise ombudsman Kate Carnell will conduct the research, telling SmartCompany the practice can be a “small business killer”.
“It’s not a systemic issue, the ATO say they don’t do it very often … but when they do it, the ramifications are huge,” she says.
Carnell is urging business owners who have disputed matters through the AAT and experienced debt recovery action to get in contact with her office.
While the short inquiry won’t form a view on whether the tax office should have the power to pursue debt in instances where there’s an active dispute, Carnell says there are “significant questions” about the practice.
“The ATO has quite remarkable powers, powers to garnishee, to take money out of your bank account without your approval.
“The issue is how they use those extraordinary powers,” Carnell says.
In a statement, an ATO spokesperson said it will cooperate fully with the probe.
“The ATO will cooperate fully with the Australian Small Business and Family Enterprise Ombudsman (ASBFEO),” the spokesperson said.
The tax office said of the 5,965 cases where a portion of debt is disputed, less than 3% are subject to debt recovery action that isn’t agreed to, based on ATO assessments of their risk profiles.
“These numbers cover all markets, not just small business,” the spokesperson said.
Announcing the probe on Thursday, Minister for Small and Family Business Michaelia Cash said she wants the tax system to be fair for small business.
“Early recovery can be devastating for a small business, and is particularly damaging when the small business disputes the recovery and then goes on to win the case,” she said in a circulated statement.
The review won’t consider active cases of debt recovery amid a legal dispute but will instead examine historical instances of the practice and is intended to guide future government decisions about the extent of ATO power.
The treatment of small business by the ATO has been discussed at length over the last year, following revelations the tax office was being heavy-handed in its dealings with SMEs.
Policymakers on both sides of the house have responded with new avenues for dispute resolution and by lowering the barriers to receiving advice.
Assistant Treasurer Stuart Robert said in a statement on Thursday the government was helping small business.
But while the coalition has unveiled several tax-focused policies to assist SMEs, there are still lingering questions about its tax clinic program, which will be administered by the ATO.