As previously reported, the ATO was cleared by the Taxation Ombudsman and acting Inspector-General of Taxation (IGT) of systemically using garnishee notices as a “cash grab”, particularly against small businesses, and incentivising its staff to issue these.
However, the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), Kate Carnell, said that she remained “concerned” about the volume of garnishees that are and have been issued by the ATO.
“As the report states, inappropriate use of garnishee notices can severely affect a small business’s cash flow. It is a very serious matter,” Ms Carnell said.
“When a garnishee is issued on a small business, funds are removed from the business’s bank account. This means the business may not be able to pay staff and suppliers and will probably cease to trade.
“Given the draconian nature of the notices and the lack of judicial or other external oversight of notices before release, they should be used only as a last resort… if at all.”
Ms Carnell said that she was pleased the investigation did not find a “concerted ATO ‘cash grab’ on small business”, or any incentivisation on ATO debt staff to issue these notices.
But she said that, as part of her office’s investigation of historic tax disputes involving SMEs, the ASBFEO will look into garnishee orders.
What the inquiry said
Acting Inspector-General of Taxation and Taxation Ombudsman Andrew McLoughlin said that the review of the use of garnishee notices “was undertaken to maintain community confidence in the administration of the tax system after serious allegations were made by both a current and former ATO officer”.
“The review was extensive, with the IGTO investigation team using our strong investigative powers to go to operations sites in Melbourne, Penrith, Parramatta and Adelaide, to see first-hand ATO system operations and personally interview over 50 ATO staff during the investigation, as well as access ATO systems, information and records,” Mr McLoughlin said.
“The report concludes problems did arise in certain localised situations for a limited period, particularly so at Adelaide’s local ATO site, but those problems were anticipated and addressed by management once they became aware.
“The allegations that there was an ATO direction for a ‘cash grab’ on small business, or that debt staff personal performance were set on amounts collected, are not sustained.”
According to the report, during the 2016–17 financial year, the ATO issued 23,712 garnishee notices, which it said was around 40 per cent less than the volume it had predicted for the year (40,289), and this equated to around 8 per cent of total debt collection cases.
Yet it did acknowledge that some small businesses were wronged, and that the IGTO had worked with these businesses to resolve their issues.
“The IGTO notes in the report that there were certainly small business people who were disaffected as the result of garnishee notices being inappropriately issued and they received support from the IGTO in resolving their complaints on contacting us,” Mr McLoughlin said.
“While it is a relatively small group as compared to the number of garnishee notices issued, it is very important that the system demonstrates care for disaffected taxpayers, especially the more vulnerable including small business.
“The report also offers a way forward for small business support via the Taxation Ombudsman’s free service to affected small business taxpayers as a first port of call where they are not able to resolve matters with the ATO directly.”
Four recommendations were made within the report:
- Have contingency plans for major assumptions used to estimate staffing resources needed for collection activities, to minimise the impact should the assumptions not hold.
- Improve the automated models which select garnishee cases for ATO staff to review and refine these models with feedback from staff, to remove taxpayers who are less likely to warrant garnishee action.
- Facilitate consistency of communications between ATO staff at all levels, for critical or complex messages where major changes to work focus occur.
- Improve support for the ATO’s Early Intervention debt staff by providing those staff with direct feedback on cases they work on, and by incorporating role-playing exercises into training sessions, both of which support better staff decision-making.
On the release the IGT’s findings, ATO commissioner Chris Jordan issued a statement on 13 March in which he welcomed the findings, stating that he was “pleased to see that the independent external scrutineer of the ATO has made it crystal clear that there were no revenue targets for our debt staff at any time, and no ‘cash grab’”.
“It is pleasing to see that the Inspector-General found absolutely no evidence of a culture of antagonism against small businesses or any other type of taxpayer. In their review, they found professional, hard-working people following our processes and attempting to do their often difficult job as well as possible,” Mr Jordan said.
“These findings are in stark contrast to the picture painted by ABC’s Four Corners program in April 2018, which would have its viewers believe that our staff were rushing to issue garnishee notices without proper thought or process to meet a target.”
According to Mr Jordan, the tax office has “always had strict guidelines and processes in place for the use of garnishee notices in the management of debt matters”.
“We are legally required to collect money owed to the Commonwealth and we discharge this duty with care,” he said.
“As the Inspector-General noted, our staff use garnishee powers appropriately and infrequently — only when other debt collection activities have been unsuccessful, and the taxpayer has not engaged with us to find a resolution.”
Mr Jordan did acknowledge, though, that the report identified “some training requirements and experience shortfalls in one of our offices that may have led to some confusion over a brief period”.
“The report also notes this was identified and rectified by our internal review systems, long before any external airing of concerns, with further training and support provided where it was needed,” he said.
“I welcome and accept all of the Inspector-General’s recommendations in relation to our internal communication, training procedures and contingency planning.”