On the back foot: Addressing the ATO’s debt collection powers
The tax debt collections powers granted to the ATO may put taxpayers on the back foot, says one tax barrister but advisers should not shy away from negotiating with the tax office to minimise the damage.
The ATO’s use of tax debt recovery action has been thrust into the spotlight in recent times, with its use of garnishee notices questioned following allegations made during an ABC Four Corners program, sparking separate investigations from the Inspector-General of Taxation and the Australian Small Business and Family Enterprise Ombudsman.
Speaking at the Tax Institute’s NSW Annual Tax Forum, Ground Floor Wentworth Chambers barrister Ken Lord said that while tax advisers face a considerable challenge to respond to a debt collection measure, it was important to consider the options available to them.
The three measures the ATO can utilise in collecting tax debts include a statutory garnishee notice, a freezing order issued by a court to prevent the disposal of assets or their removal from the jurisdiction, or an order under the Proceeds of Crime Act 2002 (POCA) restraining dealings with property of persons charged with certain crimes or where it is reasonably suspected the property is the proceeds of crime.
“There’s no magic spell here, you can’t just say ‘let it go’ to the ATO, it’s going to be an area where it is generally pretty hard for a taxpayer to challenge the ATO’s actions and often the best strategy for a taxpayer and their adviser is to try and minimise the damage in whatever way is possible,” said Mr Lord.
“There are three main options that come up in relation to all of these powers – firstly, to try and fight it, challenge the exercise of the power, the second main option will be to look at using exemptions or concessions to try and get access to some assets and the third approach is to try to negotiate with the Tax Office.
“In any negotiation process with the ATO, one message I would give is you probably need to be persistent. You need to push the position, you need to push it strongly, and you need to back it up with some reasonable facts,” he added.
“It may be worth contacting either the tax ombudsman or the small business ombudsman to see if they can assist lobbying on behalf of your clients to the ATO. But you still have to put it to the ATO in the first place, you can’t just leave it to the small business or tax ombudsman.”
With collectible tax debt rising to $23.7 billion in 2017-18, up from $20.9 billion in 2016-17, Mr Lord believes the ATO has a case for such powers but also believes there should be appropriate supervision and reviews around these powers.
“I think all of these powers certainly give a strong advantage to the ATO in any tax debt process. The taxpayer is very much on the back foot, their resources may be limited and their business subject to some pretty adverse conditions,” said Mr Lord.
“In the atmosphere of the current debate about the ATO’s powers, my position is that the ATO needs these powers but there probably ought to be better arrangements for the ATO’s decision-making to be supervised and reviewed on a timely basis and a lower-cost basis than is available at the moment and this is something we are going to hear a fair bit more about particular from the small business sector.”