ATO must listen to tax ombudsman rancid culture
Rob Heferen has almost completed his first month as commissioner of taxation and already is facing the deep problems of Australian Taxation Office legacy systems, combined with the rancid culture in parts of the organisation.
But, out of the mire, Heferen has been given a unique opportunity to totally re-craft the ATO and bring it in line with modern tax offices around the world.
He will face severe opposition from traditional ATO people who say it’s the money which counts, not the methods
The politicians took the blame for the “robo” scandal where pensioners were sent crude demand letters, but among the culprits was an ATO which did not warn its systems contained flaws.
Now, once again countless thousands of letters of demand without proper explanation are being spewed out, this time by the ATO itself. They are being generated by an ATO data bank which has between $10bn and $20bn in questionable alleged past debts.
Because it is questionable, the old data is kept separate from the main ATO system. The old data was assembled at a time when the ATO had an ingrained “head-kicking” culture.
To illustrate, when ATO mistakes caused the states to lose billions in GST revenue over the gold scandal, ATO officials thought nothing about covering it up by bankrupting large parts of the gold refining industry, using the totally false belief refiners were the key to the scandal.
Once the ATO declares there is a tax debt it is on the taxpayer to prove otherwise, and with the gold refiners the idea was to bankrupt them as fast as possible so they couldn’t fight. But one gold refining family took on the ATO and exposed the scandal.
The ATO has been trying to change its culture but a hard rump of headkickers remain, so the robo- and gold refining-style letters are now going out to demand payment of alleged debts which can date back to 2017.
Some of the ATO demands are genuine, and taxpayers have been lucky they were put in the “uncollectible” debt data system. They need to pay. But, those debts are mixed with totally fictitious amounts which out-of-control assessors dreamt up as part of the head-kicking culture.
Other amounts are a mystery because records no longer exist. Some letters are going to people who have already been bankrupted.
It wasn’t Rob Heferen’s fault. Nevertheless, he is headed for another robo/gold refining scandal. But, taxation inspector-general and ombudsman Karen Payne has intervened and set out a series of rules which, if followed, would re-craft the ATO.
And she also has an example from the past to show where the ATO went wrong.
She explains to the ATO how to tell people they are owed government money, using suggestions which completely reverse the way many in the ATO act (others have been acting properly for years).
The inspector-general begins the process of switching tax collection from the current French system of justice, where you have to prove yourself innocent, to one where the ATO starts by detailing why they believe taxes are owed. This is a fundamental but long overdue change.
Here are the inspector-general’s rules to the ATO on taxpayer communication:
Rule one: Be specific to the person’s debt. Avoid sending bulk generic communications.
Rule two: Start communication on the right foot! If a debt is the result of a human or system error, directly acknowledge the mistake and apologise for it. Explain the action taken to rectify the error and any steps being taken to prevent it happening again.
Ensure verbal and written communication is simple, timely, and clearly explains reasons for actions and decisions affecting the individual.
Rule three: Tell people what the debt is and where it comes from, providing clear information showing the breakdown of the debt and how it was calculated.
Craft personalised communication with the information. Use accessible language in all written and verbal communication.
Rule four: Tell people about their rights to seek a review and waiver, plus arrangements to pay overtime. Ensure they have access to sufficient information to fully participate in the process. Proactively help people access information they need to seek review or waiver.
Rule five: Provide contacts for people to provide more information.
Rule six: Undertaking the recovery of old debts can be a valuable opportunity to identify lessons learned and implement changes to improve future practises.
Implementing those six rules would completely change tax collection in Australia.
Payne also gives a clear, an example from the recent past to show where the ATO goes wrong.
Ombudsman: “In 2022, an IT system update resulted in the unexpected transfer of thousands of historic student debts from the Department of Employment and Workplace Relations to the ATO.
“Further debts were identified as ‘stuck’ in the IT system, which were then transferred to the ATO. Thousands of people with study loans between 2009 and 2022 were impacted. “Government decided to waive historical indexation and some of the oldest debts. However, many debts remain payable with indexation applying at today’s (higher) rates, potentially causing financial disadvantage to some people.”
The Ombudsman suggested the department apologise and help people access financial remedies where appropriate and then concludes: “Disappointingly, the department did not apologise, and its website provides only very limited information about financial remedies for individuals.
“It’s important agencies assist individuals to access fair remedies.”
Two federal ombudsmen have released a critical report on the Australian Tax Office’s resurrection and pursuit of old debts, including the targeting of one taxpayer at immediate risk of homelessness.
What we know:
- The ATO is owed tens of billions of dollars’ worth of historical income tax debts it once wrote off as “uneconomical to pursue” (ABC);
- Many of the debts have been reactivated under the “robotax” scheme, in some cases after more than a decade, reappearing with hefty interest charges;
- In a new report, the Commonwealth ombudsman and taxation ombudsman criticised the ATO’s approach to resurrecting 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;
- In one case, the ATO denied debt relief to a taxpayer despite acknowledging the person was in serious financial hardship and at immediate risk of homelessness (The Guardian);
- After intervention from the ombudsman’s office, the ATO reversed its decision and the at-risk person was provided with a refund;
- “You can’t have a one-size-fits-all [approach]. You can't have a tick-the-box approach. You need to actually recognise individual circumstances and particularly when people are experiencing financial trauma and stress,” said tax ombudsman Karen Payne;
- The ATO had been ramping up its new debt collection scheme to eventually capture up to 1.8m entities, before recently pausing the historical debts part of the program (AFR);
- At least 28,000 letters were issued to accountants and individual taxpayers under the scheme;
- The report offers up best-practice principles including clear communication of what the debt relates to and how to seek a review, waiver or repayment plan.
