Budget measure helps ease businesses’ serious problems with unfair tax bills
A new measure in the Budget will allow small businesses, by way of the Administrative Appeals Tribunal (AAT), to pause tax recovery action against them by the Australian Taxation Office (ATO).
Yet while the new legislation will allow businesses with a turnover of less than $10m to have the AAT intervene to temporally halt or modify such ATO action, Macks Advisory believes the Government has done little more than take a step in the right direction.
More can and should have been done to reform entrenched unfairness in the tax system.
Traditionally, businesses have only been able to have stays ordered on ATO debt recovery actions by courts, inevitably costly procedures that may not ultimately deliver business owners the orders they seek after waiting times of up to 60 days for a decision.
But following royal assent to new law, small business owners can be confident they have opportunity to pause ATO debt recovery actions until their cases have been considered by the AAT.
That means the ATO will not, for example, as part of its debt recovery strategy, be able to enforce garnishee notices or impose interest charges or related penalties until fundamentals of disputes with business owners have been examined by the AAT – which can order the ATO to pause or modify its actions.
Yet unfairness remains
A garnishee notice from the ATO issued on a business’s bank account can have devastating effects. Bank mangers immediately become nervous about prospects of the business’s survival. The bad news quickly spreads to the business’s creditors. The business is crushed by pressure from all sides.
Sometimes businesses receive a warning from the ATO about an impending notice. Sometimes they do not. In any case a garnishee notice is almost invariably issued before a business owner has had a chance to appeal to the AAT against this action, by which time issue of the notice may already have wrecked the business.
As one business analyst put it to us recently: “This is all too much like Dirty Harry shooting first, and if the victim survives, expecting an answer to his questions afterwards.”
It is hardly surprising many business owners are less than overwhelming grateful that if their businesses survive the impact of a garnishee notice, the Government has at least provided them with opportunity to pause the ATO’s pursuit of alleged debt.
Indeed, many are considerably underwhelmed because the notices will have destroyed businesses long before an appeal can be made to the AAT.
Doubts exist about the AAT
There are business owners who, given the AAT’s track record, doubt it is the best possible reviewer of ATO behaviour.
When the Federal Court ruled as unfair the AAT’s conclusion that electronic gossip justified the ATO’s pursuit of a tax debt without interviewing the taxpayer, the ATO sought permission to appeal the decision in the High Court -- which considered the ATO’s case so weak it refused even to grant a hearing.
As things stand, a so-called landmark judgement for the AAT has been savagely criticised by both the Federal Court and the High Court, and the Inspector-General of Taxation together with the Small and Family Business Ombudsman have made it clear Australia’s business tax collection system is mired in highly questionable practices.
Unless the Government moves to fix the problem, these practices will likely negate much of the good work it has done to keep businesses operating throughout the pandemic.
Government reforms have sustained cash flow for many businesses on the brink of collapse and has acted to improve lending procedures among banks and other financiers. Tax reform for businesses is needed as reinforcement for this situation.
A step not far enough
Macks Advisory notes Government media releases claim its Budget provision enables “a change that will bring Australia more in line with tax systems of the UK and Us”. Admittedly legislation that allows businesses to pause draconian ATO issue of garnishee notices is better than nothing, but this falls far short of being in line with American or English law.
The US Internal Revenue Service (IRS) for example is unable to collect a tax debt until a taxpayer challenging it has been given time to exercise all appeal options.
Australia’s step in this right direction follows a recommendation last year from the Australian Small Business and Family Enterprise Ombudsman that the law be amended, as it has been now, to allow the AAT to pause ATO debt recovery action.
The Ombudsman, while acknowledging the ATO’s claim it rarely commenced debt recovery action for disputed debts referred to his office, pointed out that nonetheless this had occurred in 17 out of 143 instances in 2017-18.
The budget measure follows the ATO’s recent announcement that it would make its small business independent review service permanent, allowing businesses with an annual turnover of less than $10m to seek internal review of income tax, GST, excise, luxury car tax, wine equalisation tax and fuel tax credits disputes.
But even if the Government decides to reform Australian small business law to truly match comparable business tax law in the UK and US, surely medium and larger businesses would then be entitled to the same fairness.
Currently, in order to be assured of at least something of a fair go in challenging ATO tax debt claims, many Australian business owners would be inclined to make sure annual turnover did not exceed $10m -- and that can hardly be considered something that’s good for the economy.
