The Australian Taxation Office has conceded that its letter-writing campaign to retrieve old tax debts, ranging from a few cents to thousands of dollars, has caused “unnecessary distress” in the community.
It will now review its approach to the scheme but not erase the debts allegedly owed.
The ATO’s approach contrasts with recommendations made almost 15 years ago by the commonwealth ombudsman that it be transparent in the way it communicates with taxpayers over revived debts, and to provide ample detail when doing so.
What is the ATO campaign?
The tax office sent hundreds of thousands of boilerplate letters alerting recipients they have historical tax debts. This caused widespread concern and confusion, given the letters lacked any detail about how or when the debts were accrued.
Known as “on-hold” tax debts, the ATO does not actively pursue or demand immediate repayment, with the amounts extracted from future refunds and tax credits.
About 28,000 tax agents received letters with details of on-hold debts owed by clients. Taxpayers were also directly contacted. All up, the tax office sent 200,000 letters, a spokesperson said.
Many of the alleged debts are very old and well outside the five-year retention period most taxpayers are required to keep records, making them nearly impossible to contest.
How were the debts accumulated?
The debts have been lobbed on all sorts of Australian taxpayers, with small business owners, sole traders, salaried workers, welfare recipients and retirees among those affected, according to interviews conducted by Guardian Australia.
On-hold debts generally refer to amounts the ATO deem to be owing but previously uneconomical to pursue. This could mean that the debts are small, or that the tax office believed they would be hard to recoup.
Some people are aware of how the debts were accumulated. For example, one letter recipient told Guardian Australia that his significant tax debt had been written off after his business collapsed several years ago, only to be revived.
Part of the confusion is linked to the definition of a “write-off”. While in common parlance the term implies that the debt will no longer be pursued, in tax terms it means the debt can be revived at any time.
But the majority of letter recipients are still scratching their heads as to how they accumulated an on-hold debt.
A Sydney worker, David Briggs, said $99 had been taken out of his tax refund for a debt allegedly accumulated in 2018.
“I’m pretty good at staying on top of things and I’ve never seen this before,” Briggs said. “Why wasn’t the issue raised back then? It just doesn’t make sense.”
What caused the distress?
The ATO letters have no detail about how the on-hold debts were allegedly accrued, which appears to conflict with recommendations made by the commonwealth ombudsman in 2009 when dealing with an almost identical issue.
The ombudsman’s recommendations, which were not legally binding, were that the ATO should provide clear detail when a debt was re-raised.
“This information should include the source of the debt (including how much interest has been charged), the circumstances which caused the debt to be re-raised and how to obtain further information,” the ombudsman said.
The tax office should also only re-raise debts when it is economical and ethical to pursue, the recommendations said.
Tax agents interviewed by Guardian Australia said they had several clients with on-hold debts of about 5c, which is far less than the cost of the postage for the ATO letter.
What is the ATO doing now?
The tax office has paused the letter campaign and said it would review its approach to the scheme. But it is not erasing the debts.
“Taxpayers can check whether they have a debt on hold by calling us,” it said. “However, we accept that our communication approach caused unnecessary distress – especially for those debts incurred several years ago.
“We will review our overall approach to debts on hold before progressing any further.”
The ATO has indicated it might stop extracting on-hold debts from refunds and credits during the review process.
The tax office said it had received advice that excluding any existing debts from being offset was not consistent with the law, regardless of when the debt arose.
“The ATO does not have the power to forgive or waive a tax debt,” the tax office said.
Why is the issue being compared to robodebt?
The boilerplate letters have drawn comparisons to the flawed robodebt compliance program which asserted that welfare recipients owed money to the commonwealth through an automated debt assessment.
The independent Tasmanian MP Andrew Wilkie, who was an early critic of the ill-fated robodebt scheme, said: “A government agency issuing debt notices without any explanation and expecting unquestioning compliance sounds suspiciously familiar.”
The fact that the letters went out with no explanation prompted one letter recipient to describe the on-hold debt scheme as “robotax”, given the automated nature of the process.