Taxman to pay in win for business

Small businesses and taxpayers unfairly targeted will have greater access to compensation.

Assistant Treasurer Michael Sukkar said the changes would make it easier for small businesses to apply for compensation. Picture: Gary Ramage

Small businesses and taxpayers unfairly or wrongly targeted by the Australian Taxation Office will have greater access to compensation under a beefed-up scheme that will also include an independent review process for an increasing number of complaints against the ATO.

The Morrison government is poised to unveil sweeping reforms to the compensation process following a review of the ATO’s handling of claims against it for mistakes which in some cases have crippled small businesses.

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As part of the reforms, the ATO will now be forced to take into account the financial and personal capacity of a small business or taxpayer to respond to an audit or other compliance order.

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In the most serious cases, the Tax Commissioner will be ­required to step in and arbitrate, with an independent review process also applied to disputed claims and businesses being given a new right of appeal.

The announcement follows a move by the taxation watchdog to investigate increasing complaints that small businesses are being targeted by the ATO with overzealous and punitive debt recovery methods.

The Australian revealed last week that a $7bn blowout in tax debt over the past four years — to a record $26.2bn — prompted an investigation by the Inspector General of Taxation and the Taxation Ombudsman Karen Payne.

Assistant Treasurer Michael Sukkar said the changes would make it easier for small businesses to apply for compensation in a more timely fashion and ensure independent reviews with ­improved oversight of ATO cases.

He said the government would adopt all 12 recommendations from a review of the treatment of small business tax cases.

Reserve Bank of Australia Governor Philip Lowe. The RBA has also raised its own concerns that the largest source of debt owed to the ATO was from small businesses. Picture: AAP.

The government moved late last year to address the increase in the cost of doing business for small business owners, including an independent review of the ATO’s administration of the Compensation for Detriment caused by Defective Administration (CDDA) Scheme.

The discretionary scheme allows ministers to award compensation if a person or small business has suffered because of defective administration by any government agency.

In its 2018 annual report, the ATO revealed it had made only 76 offers of compensation totalling $409,000 due to mistakes it had made that inflicted financial loss or hardship on a taxpayer or small business.

This compares to the Department of Human Services paying out $12.5m in compensation for wrong decisions over three years, and more than $8m by the ­Department of Defence.

“The government acknowledges that small businesses are the cornerstone of the economy and when they prosper, so does the rest of Australia,” Mr Sukkar said.

“The government’s response demonstrates its ongoing commitment to making it easier for small businesses to thrive and ­receive compensation where appropriate.”

An annual report of the ­Inspector General for Taxation tabled in parliament a fortnight ago, revealed a 13 per cent increase in complaints about the way the ATO pursues debt recovery.

There is a growing perception that the ATO is targeting small businesses and sole traders using heavy-handed methods.

The investigation would look at the mountain of tax processes ­already burdening small business, such as GST, income tax, CGT and BAS, but also whether there were changes in the economy that had led to the increased debt ­burden.

The Reserve Bank has also raised its own concerns that the largest source of debt owed to the ATO was from small businesses.

The rising tax debt comes despite the Morrison and Turnbull governments delivering significant tax cuts to small and medium-sized business.

At least 25 per cent of all complaints about the tax office were linked on punitive methods of debt collection.

The new measures will prevent ATO officers investigating complaints if they were involved in the original tax matters that led to the claim.

The most sensitive or complex matters would be referred to independent reviewers outside the ATO, with the most serious cases escalated to senior levels of the ATO, including the Tax Commissioner.

Significantly, the standard of proof for a complaint will be changed from “balance of probabilities” to “plausibility”, marking a significant shift in the way complaints are viewed.

ATO procedures would also insist that the office takes into account the financial and personal capacity of a small business to respond to a review, audit or other compliance process.

The chief executive of the Council of Small Business of Australia, Peter Strong, has ­previously raised ­complaints that multinational companies and some of the country’s largest ­private and public firms were not paying a fair share of tax, but small business was being aggressively targeted for outstanding tax debts.

The Tax Commissioner, however, had disputed any suggestions of misconduct or unfair practices in relation to debt collection by the ATO.