I love the TV show Fraser. He had a famous line which was "I'm listening." As a teenager, it taught me that maybe I should listen before I react or do anything.
And so, I hope ATO listens because when an Ombudsmen starts to criticise government departments, you know there is a problem.
But when Two federal ombudsmen joined forces to launch a scathing review of the tax office and call on government agencies to act more fairly when they chase people for debts, you know there is not just a problem but a serious one. Which is why I really hope they will listen.
So, how did this all come about?
We all know that the ATO needs money because the Labour Government has some spending plans. And they need to be paid for. Where does the Government get the money from? Well, you and me. Obviously.
But there was a problem called Covid.
Everything that is wrong in our world is because of Covid- 19, even though it rarely features in our minds anymore. Last week, I was waiting for customer service to pick up the phone, and the headmaster-type voice that all these recorded systems had told me the delay in answering was due to Covid. Really?
But in terms of the ATO, there is some truth. For 3 years the ATO did not collect debts. It allowed businesses to continue when they should have been shut down years ago. Many of these companies are now going back to the ATO saying they can only pay, say, 20 cents for every $1 owned, or they will liquidate, which means the ATO gets nothing more than a few tables and chairs. This has then meant the ATO has been lifting the mattress and finding there is not as much money as the Labour chiefs need.
And that has caused a lot of tax inspectors and labour MPs to lose sleep. There is much grinding of teeth, and many of them are running around with their arms in the air, screaming at the top of their lungs how unacceptable life is.
But then some bright spark thought outside the box but not in a good way. You see, the ATO has always had a policy that if there were debts a taxpayer could not pay at the time, they would ‘cancel’ it. Except they did not cancel it. What they said was that the debt was ‘uneconomical to collect’ and removed it from the accounts. This meant the taxpayer did not see it on the tax portal, and we, as agents, did not see it either. But as far as the ATO was concerned, it was still due. It had not been written off.
Well, the ATO has now decided to add it back and added interest to it, too. There is a figure of $18Bn of such debts before interest is branded about, so I can see a few ATO inspectors rubbing their hands with glee.
I have a client who had a debt of about $250,000 ‘cancelled’. The ATO then added it back with interest and now they own the tax office close to $1m. It is frankly ridiculous. And unfair.
This is how the Commonwealth Ombudsman and Taxation Ombudsman got involved and wrote a report that singled out the ATO’s approach to re-activating very old debts, as well as the way it treated people in financial hardship.
“While the law may require agencies to take certain action, agencies are responsible for determining how they take that action in a way that minimises distress to affected and impacted people,” the joint report said.
The law is stupid because it says the ATO must collect tax debts, but it did not tell it how to do it and what the best practice for collecting those debts are. Which means the ATO can do whatever they want.
And because this has all been done in a bit of a rush, some of the amounts demanded have been less than the cost of sending the letter in the mail.
About 200,000 letters advising people they owed tax debts ranging from a few cents to thousands of dollars. Or in my client’s case $1M.
The problem is that the letters do not explain how or when debts were incurred so we tax agents get confused and sometimes angry calls from clients demanding to know how this all occurred.
The ATO response? They say, ‘It was never our intention to cause frustration or concern.’
Yeah right. You do not need to be a rocket scientist to know that sending out a $1m demand is going to cause ‘frustration and concern.’
They also said, “They are previously incurred debts that were put on hold because they were uneconomical to pursue. Each debt has been verified, and taxpayers were either notified of the amount owing at the time it was assessed, or the amount was self-assessed.”
But the report also focused on what it regards as the tax office’s failings. It notes that the ATO sometimes ignores the dire circumstances of people in financial hardship. I can confirm that. They just assume taxpayers can somehow generate savings from nowhere. Now, I don’t expect the ATO to be all warm and gooey like a molten chocolate brownie, but when a taxpayer tells them and provides evidence, he may become homeless, I think they should at least try to work the problem. According to the report, the ATO are not prepared to do that.
So, if you get a letter asking for debts you don’t know about, don’t ignore it. Communicate with the ATO and try to get them to cancel any fines or interest first and hope they listen. Then work out how you are going to pay it because the chances are you will have to pay it.
It’s an unfair and stupid system. But when are taxes and tax procedures fair.
Minimising taxes is step 2 of our 9 steps to working less, earning more and building wealth.
If you want to know more contact Hitesh at hitesh@medisuccess.com.au or call 07 3161 9548.
