Ombudsman slams ATO’s “excessive” debt-collection practises in scathing report

mental health

Small business ombudsman Kate Carnell.

Small business ombudsman Kate Carnell is calling on the ATO to cease debt-recovery action against firms disputing their bills and wants new external oversight over garnishee notices.

Detailing findings from a seven-week investigation into the ATO’s use of debt recovery on Monday, the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) has concluded the tax office has been “excessive” in the use of its powers.

The review was sparked early last month over concern small businesses with ongoing Administrative Appeals Tribunal (AAT) cases against the ATO are being pursued with “business killing” garnishee notices, which allow the tax office to strip funds directly from bank accounts.

Carnell says businesses can be left unable to pay wages, rent, suppliers or bank loans, effectively leaving them dead in the water.

“They put small business out of business,” Carnell tells SmartCompany.

“Even if they win the dispute they’re dead, they’re gone.”

“Extraordinarily high figure”

While the ATO maintains the use of debt-recovery action — including garnishees, director’s penalty notices, statutory demands, and sequestration or winding up applications — is “very rare” during an active dispute, the report found these powers were used in at least 12% of cases during 2017-18.

Carnell says the evidence she’s gathered so far appears to “contradict” the ATO’s line, establishing a case for a broader review of debt recovery that considers disputed debt not before the AAT.

“I don’t think that’s very rare,” Carnell says.

“When you think about the outcomes of these results, of these sorts of practices, that’s an extraordinarily high figure.”

The tax office says it only recovers disputed tax debt in “exceptional circumstances”, such as where there’s evidence of criminal activity or risk funds intended for government coffers could be dissipated or transferred.

Of the 17 cases where recovery action was undertaken on disputed debt in 2017-18, three, valued at $1.49 million in debt and penalties, were initiated while AAT action was already underway.

“For the vast majority of small businesses who have a disputed debt, we will not enforce recovery of a tax debt, including even parts of the debt which are not in dispute,” the ATO said in its submission to the report.

Garnishees cause “stress and anxiety”

Tax office use of garnishee notices has been under scrutiny for some time. Last month the Inspector General of Taxation (IGTO) released a report examining allegations made by Four Corners last year about heavy-handed tactics being employed.

The review found there was no evidence the ATO engaged in a “small-business cash grab” but did identify one case where a manager ‘joked’ with colleagues about issuing the business-crushing notices.

Small-business accountant Stacey Price, owner of Healthy Business Finance, says she’s had clients receive garnishee notices after being a week late on their payment plans.

“This puts even more stress and anxiety on the business owner, who is usually trying to do the right thing,” Price tells SmartCompany.

We have had serious and threatening debt recovery letters and SMS be sent to clients when activity statements are not even overdue yet as the ATO has not taken into account the extended lodgement timeframe BAS [Business Activity Statement] agents get for their clients.”

A commercial electrical contractor used as an example by the ombudsman allegedly lost seven of its major clients after they were issued garnishee notices by the ATO, requiring them to withhold 50% of claims payable to the business.

The business later ceased operation, terminating 90 workers.

Calls for check on ATO garnishee power

In total, the ombudsman has made 11 recommendations calling for an overhaul of the way the ATO administers debt-recovery powers, including mandating external oversight and approval for garnishee notices.

The report suggests the court system could be employed to require the ATO to obtain approval, or at least make a preliminary case to a third party, before being able to utilise its garnishee powers.

Further, Carnell wants the next federal government to change the law so businesses with active AAT disputes can apply for stay orders on debt recovery.

“They don’t have to prove to anybody that their concerns are valid,” Carnell says.

“The police don’t have that much power.”

The ombudsman also wants the ATO to do a better job educating businesses about dispute resolution options, implement tailored tax payment plans for small businesses, and consider alternative forms of debt security which avoid garnishees.

NOW READ: “Ironic”: ATO manager joked about issuing business crushing garnishee notices, IGTO finds

NOW READ: “Small business killer”: ATO dispute debt recovery to be reviewed

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Michael Ratner
Michael Ratner
1 year ago

Since when did I become the defender of The ATO.
I accept the article but it’s missing pertinent facts and the main one is everyone should’nt be reduced to the lowest common denominator when considering requests from business owners.
There certainly are genuine and worthwhile cases and then there are those with a history of taking liberties. In the middle are the ATO consultants who have to make a decision and unfortunately the buck just doesn’t stop anywhere.
Those businesses with plenty past convictions deserve little support vis a vis those on the otherhand who are genuine, might have encountered a hiccup and of course turn to the ATO because it’s a waste of time trying to talk to banks.
There are very many small business out there who actually deserve someone with a CAN DO attitude but it seems everyone gets put in the same box.
I suppose those businesses that fit into the article have many past convictions and fully deserve what they get.
More important is that fair dinkum businesses be heard.

tommo
tommo
1 year ago
Reply to  Michael Ratner

Michael, you and I have to abide by the law. These guys are above the law. Maybe you should view the 4 Corners episode about this subject, the ATO in now way treated those people fairly.

Michael Ratner
Michael Ratner
1 year ago
Reply to  tommo

Tommo of course we have to abide by the law but from what I read it appears those The ATO moved on have past convictions.

jimmy55
jimmy55
1 year ago

This really shows you give up your human rights when you go into business

Government has to knock this on the head and make those people at the ATO realise its the SME’s that create and maintain the jobs, that generate the payroll axes, super and company tax.

This is not good enough.

If they have more power than the police and normal judicial system, then that is fascism.

This is fascism, what was mentioned in the article, the ATO should be paying damages and not have to be taken to court to do so.

A commercial electrical
contractor used as an example by the ombudsman allegedly lost seven of
its major clients after they were issued garnishee notices by the ATO,
requiring them to withhold 50% of claims payable to the business.

jimmy55
jimmy55
1 year ago

jimmy55 • an hour ago
This really shows you give up your human rights when you go into business

Government
has to knock this on the head and make those people at the ATO realise
its the SME’s that create and maintain the jobs, that generate the
payroll taxes, super and company tax.

This is not good enough.

If they have more power than the police and normal judicial system, then that is fascism.
This is fascism, what was mentioned in the article, the ATO should be paying damages and not have to be taken to court to do so.

A commercial electrical contractor used as an example by the ombudsman allegedly lost seven of its major clients after they were issued garnishee notices by the ATO,
requiring them to withhold 50% of claims payable to the business.

jimmy55
jimmy55
1 year ago

It amazes me how few people comment on these important issues. The ATO should not be able to do this. The 4 corners report a while ago show we are the easy targets.

The government does not respect SME’s the system gives us no rights . juts look at how abusive fairwork is to SME’s.

Thye will suck you dry and blame you if you are only human and fault.

If they got 100+ comment here they would realise people are not happy.

Pete
Pete
1 year ago

Not to mention how our whistleblower friend, Richard Boyle, is facing prison time for speaking out about this issue. If the ombudsman is coming to the same conclusion, you’d hope the charges against him would be re-evaluated.

Bevan Pierce
Bevan Pierce
1 year ago

I have to say that as an accountant working with many small business clients this issue has been sensationalised by the media.Working with more than 100 small business clients I cannot recall a single one of them being persecuted by the ATO or receivnig a Garnishee Notice after being a week late – I find that claim laughable and would love to see the fact check!.
That said, my clients do receive excellent advice as soon as thngs look to be heading south with their tax debts and with a modicum of planning the issues noted above can be minimised or avoided altogether. For example, garnishee notices are easily mitigated and I have noticed lately the ATO appears to have stopped issuing these.
In my experience, from being on the front line, those small business clients who choose not to take advice and implement recommended plans early when things start to deterioate are the ones that face the most significant risk. I don’t doubt some are placed under enormous pressure from the ATO, but again, a good adviser can mitigate that stress and provide competent advice to mitigate any long term detriment to the business – If the client is prepared to listen and act on advice.