The ASBFEO found that ATO debt recovery action happens in a sizable number of cases which are before the AAT (at least 12%) and that such action can severely impact a business’ ability to prosecute its case and carry on its business. In particular, the use of garnishment (specifically enduring garnishee notices) can have a crippling impact on businesses.
This is especially true when the first knowledge of a garnishee notice is the bank not honouring payments such as wages, rent, suppliers’ invoices or even loans. This has a devastating impact on a small business and the follow on effects of such actions on ability to pay, reputation and credibility is significant. There is also a real question as to whether such action is even effective since businesses will not generally have the means to emerge from this treatment to pay their ongoing tax bills, let alone carry on with their business.
Further, although our initial research was limited to historical AAT cases (particularly over the last year), the same stronger forms of ATO debt recovery actions are applied well before any AAT appeal has commenced, thereby impacting small businesses to a far greater degree. The ASBFEO believes from these initial findings there is further work to be done in investigating this far wider disruption of small businesses.
The ATO has a mandate to collect taxes for the purposes of Government and the ATO reports for the 2017-18 tax year that 89.5% of all tax liabilities were paid on time. However, small business taxpayers face challenges different to PAYG employees or large, well-resourced corporations in meeting and disputing tax debts. Issues such as cash flow, slow payments, access to finance and working capital, technological change, workforce management and personal circumstances (such as illness) all combine to place a small business taxpayer at a severe disadvantage when pitted against one of the largest and most powerful Commonwealth Government agencies.
In respect of disputed debt before the AAT, this report details:
- debt recovery options employed by the ATO against small business
- evidence of the scale, extent and impact of the ATO’s use of its enforcement powers, such as garnishee notices
- recommendations for change to improve the experience of small business taxpayers.