A stop can be put to what has been termed an ATO “national scandal”

The Federal Government’s extensive backing of small business and its intention to stop the Australian Taxation Office (ATO) issuing garnishee orders while tax issues are being disputed, are claimed to have been undermined by ATO-inspired draft legislation.
The media has branded the ATO’s ability to destroy small and medium-sized enterprises by garnisheeing, “a national scandal”, and commentators say tax officers’ advice to the government in preparing legislation aimed at putting a stop to it, humiliates Assistant Treasurer Michael Sukkar and Small Business Minister Stuart Robert.
Concurrently the draft of proposed new legislation also seems to make mock of Prime Minister Scott Morrison’s justifiable claim that his government supports SMEs. (Minister Robert has stated publicly: “We are backing small business over the ATO. No longer will the ATO be able to garnishee while a dispute is in train”.)
Furthermore, the Inspector-General of Taxation has detailed the ATO’s garnisheeing of SMEs as “inappropriate use of the legislation”, and while the draft of corrective law looks good at first glance, it isn’t – more about that later.
Certainly January 12, when details of the draft were released, appears to fall a long way short of what a reasonable person would consider an ideal date for the announcement – which was when the Djokovic debacle, health system problems, and the threat of disrupted supply chains to the economy, were monopolising public attention and media headlines.
The draft legislation in question
The Treasury Laws Amendment (Measures for Consultation) Bill 2022 aims to provide the Administrative Affairs Tribunal (AAT) with increased powers to safeguard the interests of businesses with annual turnovers of less than$10m, where they dispute claims made against them by the ATO.
Specifically, it seeks to prevent the ATO taking debt recovery against these businesses – such as initiating winding up proceedings or issuing garnishee notices – until proper consultations have concluded and clarification of underlying issues in a dispute are resolved.
Superficially the proposed legislation looks effective, but law under which the AAT (a government statutory body) functions, is very complex. Challenging it can be not only an eye-watering expense, but also futile. Last year, having deliberated for more than 12 months on a key tax matter, the AAT finally delivered a finding subsequently shredded by a Federal Court decision.
Under the new draft legislation, a small business, on lodging an appeal against an ATO claim, needs to assemble a legal team to navigate a labyrinth of law while it is continuously under fire from taxation officers -- and that’s neither in the spirit nor in touch with the reality of what the government has promised, namely genuine support for small businesses.
Dissatisfaction with the draft heightens on further examination. It states the AAT can’t make an order under key subsections of the legislation unless that order is unlikely to prejudice or unduly restrict the Commissioner of Taxation’s administration of taxation law. Which in laypersons’ terms would appear to be saying that only if the ATO agrees, can the AAT stop taxation officers from continuing to attack small business owners during an appeal.
So, what’s to be done?
Macks Advisory sources have gone so far as to tell us they’re astonished public servants, by promoting insertion of such a provision in draft legislation, would appear to have the temerity to be trying to circumvent the government’s expressed intention of supporting and protecting small businesses.
While we don’t see ourselves as having a role in any debate on this criticism, we nonetheless would want to see serious consideration given to small business owners who say a very simple Act could ensure fulfilment of the government’s promise.
It’s our belief a multitude of small businessowners would like to see legislation enacted to the effect that -- irrespective of anything else in taxation legislation -- where it is determined a genuine appeal is being undertaken by a business against an ATO claim, taxation officers should not be permitted to take any action in pursuit of that claim.
Of course, the only exception to forbidding the ATO to attempt recovery of claimed debt, should be evidence indicating an operator is likely to grab money from a business’s assets and bolt.
If the ATO has suspicions along these lines, then our sources believe legislation should enable it to apply to a court or some other authorised body to freeze money in bank accounts -- but only after the appropriate authority has ruled that freezing is justified.
Liability in tax audits
Accountants should leave client directors in no doubt about whether they are liable for their company’s tax debts revealed in an audit by the Australian Taxation Office (ATO).
The ATO is substantially increasing debt recovery actions as government pandemic stimulus and protective measures for businesses are wound down. Directors’ personal liability for a company’s tax debts will depend on whether original lodgements made during an audited period were timely.
If directors have histories of tax compliance, it’s unlikely the ATO will be as heavy handed as it could be in dealing with issues arising from audits -- which could include immediately holding them personally responsible for a company’s tax debts by enforcing requirements related to lockdowns and non-lockdowns and issuing Director Penalty Notices (DPNs).
Since April 2020 directors can be held personally liable for company tax debts that may include GST, WET, and LCT, as well as unpaid PAYG and SGC. Readers wishing to refresh their memories of these matters, particularly relative to DPNs, should go to www.macksadvisory.com.au and type DPN in the search field at the top right of the web site.
What prompts an ATO audit?
The ATO can and does conduct audits randomly, but when it suspects company directors are behaving in such a way that it’s likely they could be made personally responsible for a company’s tax debt, then this could trigger an audit.
Common triggers of audits include a lodgement history of not paying on time and not paying correct amounts of superannuation, or inconsistencies between a company’s business activity statements and tax returns.
Taxpayers whose behaviour includes failure to declare income, displaying disparity between income and lifestyle,and making excessive work-related tax deductions, may trigger audits.
Then of course there are tip-offs, often coming from honest taxpayers who are suffering price under cutting and subsequent loss of business against competitors who can afford to undercut their competition because they’re not paying tax. Who can fairly blame people who notify the ATO about situations like this?