‘I did it to put you in jail’: Tax system is ‘weaponised’ to harm partners, ombudsman finds

When Melbourne woman Laura asked her then-husband how he could have fraudulently accrued $500,000 worth of tax debt in her name, his reply was blunt: “I did it to put you in jail.”

Stories like hers shocked and disturbed the national tax ombudsman, Ruth Owen, who on Thursday released a report into identification and management of financial abuse within the tax system.

The tax system was being weaponised by perpetrators using coercive control and business knowledge to “deliberately create harm and financial distress to their intimate partners”, said Owen, who is also the inspector-general of taxation.

Laura is a victim of financial abuse.Credit: Luis Enrique Ascui

Victims often became aware they owed significant amounts only when they received penalty notices, and they usually had to pay the debts.

Owen wants the Australian Taxation Office to provide “more opportunities to clear the debt, within existing legislation”, a specialist ATO team to manage cases of potential financial abuse, and more help for victims to have debts extinguished. She supports US-style “innocent spouse” relief provisions – which would require legislation.

Laura, who cannot be identified for legal reasons, had no control of her own finances, had worked for no salary in the business her husband owned and ran, and learnt he had named her director of it only when she was called by the Tax Office.

“I never really dealt with the Taxation Office until I got the phone call saying there was a half-a-million dollars in debt,” Laura said. Her husband had been the sole contact with the accountant managing the business’s financial affairs.

“I turned to [my husband] and said, ‘How do you get a debt that deep put under my name?’ And he said, ‘I did it to put you in jail’ … Everything he put in my name, he falsified: my signatures on so many documents.”

Laura was advised the business was being placed into liquidation in 2023, at which time $300,000 worth of the debt was relieved by the ATO. But $200,000 in debt remains, even though Laura provided evidence, via her lawyer, that it was generated via financial abuse.

Owen said once tax financial abuse occurred, it was very difficult to untangle.

“I met one woman recently, her words were, ‘I’m just stuck in a spider’s web’, no matter what she tried, and she was a very smart woman … she literally couldn’t see her way out of it,” said Owen.

Even with a financial counsellor’s help, the woman could only get some interest on the tax debt remitted.

Despite the ATO’s intention to support vulnerable people, frontline staff often did not recognise signs of financial abuse, and victim-survivors may experience a lack of empathy.

One-third of perpetrators referred to the ATO for failing to pay child support – and who sometimes do not lodge tax returns for 10 years – were not followed up.

“What we don’t know is how many of those, when they are followed up in enforcement of [tax return] lodgement, might still under-declare their income,” Owen said.

While some financial experts referred to such abuse as “sexually transmitted debt”, Owen said she preferred “weaponisation” because perpetrators’ actions were used to intentionally hurt partners.

“They are either fraudulently, or using coercive control, to transfer tax debts or create tax debts for the victim-survivor, and to make sure the perpetrator is nowhere to be seen when these debts crystallise,” said Owen.

Effective perpetrators “can make even somebody with a very high level of financial literacy, an accountant or someone who has their own business, feel hopeless, and [ATO officers] need to be aware of that in their responses,” she said.

Tax financial abuse includes making partners directors of companies unknowingly or under duress, misusing family trust structure and distributions to avoid tax liability for the perpetrator or reduce assessable income, and fraudulently using a victim-survivor’s details to lodge false tax claims and registrations, or wrongfully claim or divert refunds.

“Perpetrators may also deliberately fail to lodge tax returns (at all, or on time) or under-report their income to avoid or minimise child support liabilities or create welfare debts for victim-survivors,” the report stated.

Tax ombudsman Ruth Owen found victims left with tax debts created by financial abuse perpetrators were usually required to pay them off.Credit: Steven Siewert

Dr Domenique Meyrick, chief executive of Financial Counselling Australia, said Owen’s report captured the damage being done and provided “excellent” recommended solutions, including a “safety by design model”.

“We frequently see people where financial abuse is designed to harm them and send a message … It’s used by the perpetrator as a tool of power and control,” Meyrick said.

“People who perpetrate financial abuse are often very determined and very creative. They find very harmful ways to take advantage of the [tax] system in place. This has been a hidden problem for a very long time.”

It was relatively common to see perpetrators making victims directors of companies – and liable for tax – without them knowing.

Jayne Dullard, executive director of engagement and advocacy at not-for-profit agency Each, which has supported Laura, said while the big banks and accounting industry were working to combat financial abuse, the federal government had not taken enough action.

“The government knows about intimate partner violence, but financial abuse relating to business continues to be a big problem hidden in plain sight,” Dullard said. “The Commonwealth Bank has calculated the annual losses to the ATO due to financial abuse to be nearly $11 billion a year.”

Loopholes including the ability to create fake directorships in partners’ names needed to be closed, and an emergency 1800-number should be set up for those suspecting financial abuse, as should case-management services for survivors, she said.

Dullard’s agency is among 60 community bodies on the Economic Abuse Reference Group, which briefed government officials last month on the need for financial abuse preventive and redress measures, and for a National Centre for Financial Abuse.

The group asked the government and the opposition in pre-budget submissions to commit about $6 million over three years to create the centre and its programs.

“We know financial abuse is happening, and we know it’s much bigger than anyone thinks, and it’s devastating, but there is a whole lot of detail about by whom, and to whom, this is being committed that needs to be uncovered,” said Dullard. “We need a funded national response.”

Founder of the UNSW’s Tax and Business Advisory Clinic, Professor Ann Kayis-Kumar, said the ombudsman’s report was a promising step in affecting systemwide change, but both tax legislation and administrative solutions were “desperately needed”.

The ATO said in a statement that it welcomed the report and agreed with all its recommendations. Its findings “help us to increase our understanding of community expectations and real-life experiences, so we can better support taxpayers impacted by financial abuse”, the ATO said.

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