ATO too aggressive on small business debt, says Kate Carnell


Kate Carnell
Kate Carnell

The Australian Taxation Office is destroying some small businesses with its approach to debt repayments, argues Small Business Ombudsman Kate Carnell.

The ATO has been undertaking debt recovery against a significant number of enterprises with cases currently before the Administrative Appeals Tribunal, which “can have a crippling impact on businesses”, says Carnell in a report released Monday.

“This is especially true when the first knowledge of a garnishee notice is the bank not honouring payments such as wages, rent, suppliers’ invoices or even loans,” the report argues.

“This has a devastating impact on a small business and the follow-on effects of such actions on the ability to pay, reputation and credibility is significant.

“There is also a real question as to whether such action is even effective since businesses will not generally have the means to emerge from this treatment to pay their ongoing tax bills, let alone carry on with their business.”

Carnell has called for the ATO to immediately cease debt recovery action against any small business with a dispute before the AAT.

“We found ATO debt recovery action occurred in at least 12% of cases before the AAT, severely impacting a small business’s resources to prosecute its case and carry on its business,” the Ombudsman said.

“Strong forms of debt recovery action by the ATO, such as garnishee notices, can destroy a small business because it effectively strips funds from a small business’s bank account.

“Consequently, the small business is not able to pay wages, rent, suppliers or bank loans and the follow-on effects of this — bad reputation, no credibility and potential bankruptcy — is significant.

“Despite the devastating impact on small businesses, the ATO alone has the authority to produce garnishee notices without any external oversight.

“ATO garnishee notices must be actioned only with appropriate oversight and approval, such as the court system, before an order can be issued.

“The asymmetry in power between this large and powerful organisation and the small business sector has left these particular small businesses in a vulnerable position and with diminished access to justice. They simply don’t have the same resources to fight where there is a legitimate dispute.”

It is important the ATO’s actions are seen to be fair, Carnell said.

A recent review by the Inspector-General of Taxation and Taxation Ombudsman stated that while the ATO’s garnishee policy, processes and practices generally sought to balance collecting debt with appropriate care, ATO staff had not exercised their decision making power “proportionately and appropriately” on all occasions.

After proudly welcoming the IGTO’s main findings that there was no systemic “cash grab” targeting small businesses in a speech at a conference last month, Tax Commissioner Chris Jordan conceded the agency was “not perfect” in the question and answer session:

“We are a big organisation, there’s a lot of interactions with people, we’re not perfect. Things will go wrong, things have gone wrong. So it is incumbent upon us, as I said, to own mistakes we have made, and if necessary, put in place better processes.

“And you will always find something that has not worked as intended. That is going to be the case. We have got 20,000 people, as Bruce Quigley, many of you recall, long-term second commissioner, he said, ‘Chris, it is like a country town. We have got everything from the professor through to — and I hesitate to say this — the village idiot’.”

Small businesses taxpayers in dispute with the ATO now have the option of a “simple, fast and cheaper external review” through the ombudsman’s new small business concierge service, Carnell added.

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