In brief

In response to increased pressure concerning the ability of the Australian Taxation Office (ATO) to recover tax debt effectively and equitably, the Inspector-General of Taxation (IGT) released the report of his review on the debt collection strategies and activities of the ATO on 14 July 2015 (Report). The review is timely, in light of the growth in collectable tax debt over the last decade to more than $20 billion in 2013-2014, and its continued increase as a proportion of gross domestic product (GDP). The ATO has previously acknowledged that its approach to debt collection was ‘random and ad hoc’ and had not reduced the growth of debt. The ATO is commencing a program of work to explore alternatives and improve its recovery action. The Report examines the ATO’s previous approaches and developing projects on debt collection.

In detail

Overall, the IGT has made 19 recommendations, 16 of which the ATO has agreed in principle or in part. We have examined the key observations and recommendations of the Report below.

Targeted debt collection

The Report raises the need for the ATO to take a targeted approach in its collection of tax debt. It has recommended the design and implementation of the ATO’s new debt strategy in a manner that uses existing and extensive research findings and data to target debt activities of key taxpayer segments, such as micro businesses and individuals, which have substantial amount of recurrent and/or aged tax debts and account for approximately 60 percent ($12.3 billion) of the total collectable tax debt. The Report notes that large business forms a ‘negligible amount’ of collectable debt. The ATO has agreed to take adopt a targeted approach by using advanced analytics and research as a part of its debt strategy.

Training of ATO Officers

Taxpayers have observed that delays in negotiating payment arrangements have often resulted from the failure to appropriately analyse the commercial operation of businesses and their relevant industries. The Report recommends, and the ATO has accepted, that it should expand its training framework to include programs which improve the commercial awareness and understanding of taxpayer behaviours for ATO staff dealing with payment arrangements.

Remission of Interest

The Report recommends that the ATO remit interest in appropriate cases to encourage prompt payment of a collectable debt. The recommendation stems from stakeholder observations that it has been difficult to have interest remitted, and where the ATO does remit interest, it does so inconsistently. However the ATO has not accepted this recommendation, suggesting that it is a matter for Government as it believes that legislative policy prevents it from remitting interest in appropriate cases to encourage prompt payment of debts.

Recovery Action

The Report has recommended that the ATO improve its approvals processes and authorisations in the course of exercising the Commissioner’s formal debt recovery powers including issuing garnishee notices, Departure Prohibition Orders (DPO) and the taking of security over assets. This recommendation stems from stakeholder observations that the ATO has at times taken firm recovery action in inappropriate circumstances or without making a reasonable effort to advise the taxpayer. The ATO has agreed either in part or in principle to these recommendations concerning the use of recovery powers.

The takeaway

The ATO’s debt collection strategy will continue to attract significant attention in light of continued pressure to improve the effectiveness of its collection activities. Despite agreeing to most of the recommendations, there is some uncertainty as to the extent to which the ATO will implement them as a part of its current program of work. The IGT has already suggested that, whilst the ATO agreement is welcomed, the associated ATO commentary has created “substantial uncertainty” and “risks inadequate implementation” of the recommendations. The IGT will maintain a watching brief over the effectiveness of the ATO’s work program, and may conduct further targeted investigations where further complaints arise.