ATO compliance costs outweigh debts

The Australian Taxation Office (ATO) has come under criticism for resurrecting small, decades-old debts, some as low as a few cents, which had been previously written off. In a recent letter to around 28,000 tax agents, the ATO informed them that clients' tax refunds or credits would be used to pay off these "uneconomic" debts. While the ATO's actions are legally mandated, tax agents have expressed frustration over the administrative burden this has created.

Tax agents' concerns

Many of the debts in question date back several decades and involve deceased taxpayers or defunct businesses. Some tax agents are finding it impractical and costly to reconcile these minor debts, which are often less than a dollar. The lack of a materiality threshold and insufficient information about the origins of the debts have added to their concerns.

Tax agents like Gail Freeman and Lisa Greig received letters with lists of clients owing mere cents. While they found the situation somewhat humorous, they stressed that it created unnecessary work and distress for their clients. The lack of clear communication from the ATO about the possibility of resurrecting previously written-off debts also raised concerns.

Legal requirement

The ATO defended its actions, stating that it is required by law to offset future refunds against these small debts. It noted that it would update its systems to provide better visibility of current debts on hold to clients in the coming months.

Despite the legal requirement, tax agents argue that pursuing such small amounts is inefficient and burdensome for both tax practitioners and the ATO. The controversy underscores the need for improved communication and more practical approaches to debt collection.

Make a claim

If there is a legal requirement to respond to a statutory body's investigation into a tax return or compliance obligation, clients with an AuditCover tax audit insurance policy may be entitled to claim professional fees for your time in responding.

What's covered

The ATO or State-based statutory bodies investigate tax returns and compliance obligations. Tax audit insurance notice can respond to the fees incurred when these bodies are chasing up a debt. Some of these designated taxes include:

• Capital Gains
• Tax Income Tax
• Land Tax
• Payroll Tax
• BAS/GST Compliance
• Superannuation Guarantee
• Fringe Benefits Tax
• Stamp Duty and more…

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