CHAPTER 7Looking at the agencies

Australian Taxation Office menu: Complaints overview | Tax environment | Complaint assisted transfer project | External project work | The year ahead

The Ombudsman has been investigating complaints about the Australian Taxation Office (ATO) since 1977 when the office commenced operation. In 1995 the Ombudsman was also given the title of Taxation Ombudsman following recommendations of the Joint Committee of Public Accounts and Audit (JCPAA), to give a special focus to the office’s handling of complaints about the ATO. The committee’s recommendations recognised the imbalance that exists between the powers of the ATO and the rights of taxpayers.

The Taxation Ombudsman is assisted by a Senior Assistant Ombudsman, a specialist Tax Team, and generalist complaint investigation teams located in our state offices. Following changes to our office’s work practices during this reporting year, the Tax Team put greater emphasis on addressing a range of general taxation administration issues, providing advice to our investigation officers on tax complaints and issues, and maintaining a productive working relationship with the ATO.

During 2006–07 we continued to build on our previous efforts to encourage review and improvement in ATO tax administration, as well as improving our own handling of complaints. A particular highlight is our initiation of an ongoing program of project work focusing on aspects of tax administration. We hope this will encourage the ATO to review its own processes where this is not already being done. We also trust this will provide a higher level of assurance about the health of the tax system.

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Complaints overview

In 2006–07, the Ombudsman received 1,261 approaches and complaints about the ATO, compared to 1,523 in 2005–06. We believe the continuing decrease in the number of complaints about the ATO indicates that the ATO’s improvements to its own internal complaint handling system are enhancing the handling of taxpayer complaints. The office finalised 1,272 complaints, of which 187 (15%) were investigated.

During 2006–07, we received complaints about a range of ATO activities and products, including superannuation guarantee, lodgement and processing, interest and penalty remission decisions and the conduct of audits. Complaints about ATO debt recovery action, and the accuracy, clarity and timeliness of ATO advice continued to dominate. The number of complaints arising from mass-marketed scheme decisions continued to decrease as the ATO nears finalisation of scheme settlement cases.

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Tax environment

In an increasingly complex tax environment, there will always be a need for effective review and complaint-handling mechanisms to assist individuals who consider they have been wronged in some way by the ATO. In addition to statutory objection and appeal rights regarding assessment and related decisions, it is important to have an effective system for handling complaints about the ATO to provide assurance about the health of the tax system, and to indicate where possible problems may exist or arise.

‘In an increasingly complex tax environment, there will always be a need for effective review and complaint-handling mechanisms ...’

The Ombudsman acknowledges that the ATO has worked hard to establish fair and responsive remedial mechanisms that can remedy mistakes that do occur. Very few of the complaints we examined raised concerns of broader systemic or other significance to this office, and we receive few complaints alleging institutional bias or bad faith. Most of the complaints we receive relate to ‘simple errors’, such as concerns about delay or ambiguity in ATO correspondence, accounting errors, relatively straightforward disputes about tax assessments or a taxpayer’s level of debt. Often these illustrate the difficulties people have understanding ATO processes and their own obligations. In this regard, tax complaints are no different to many other types of complaints we receive.

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Complaint assisted transfer project

Our usual practice is to suggest to complainants that they first attempt to resolve their concerns directly with the ATO because we consider the agency should have the opportunity to correct any perceived problems. To test the effectiveness of this practice we conducted a survey of tax complainants in 2005. The survey identified a low take-up rate of our advice by taxpayers.

In January 2007 we began a trial of directly assisting the transfer of tax complaints to the ATO. The objective was to assist and encourage complainants who may be uncertain or uncomfortable about complaining directly to the ATO. The assisted transfer process enables taxpayer concerns to be raised with the ATO in the most effective and efficient way possible. We also reassure complainants that they can come back to our office if dissatisfied with the outcome from the ATO.

In May 2007 we assessed the assisted transfer trial and adopted it as a standard work practice during initial handling of tax complaints. We are confident this change provides a more effective complaint service for many of our tax complainants.

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External project work

Towards the end of 2005 we implemented a forward work program of external tax projects. Those projects not completed in 2006–07 will be carried forward for completion in 2007–08, and other new projects will also commence.

Our external projects generally examine the systemic issues that arise from individual tax complaints. We aim to assess the health of specific areas of tax administration, to identify potential problem areas in ATO administration and make recommendations where appropriate.

In designing the project program, we were conscious of the work of the Inspector-General of Taxation and the Australian National Audit Office (ANAO) and have attempted to avoid or minimise overlap by identifying areas that complement their work. We aim to work closely with these oversight bodies in improving tax administration. The unique perspective that we can bring to these broader projects, gained primarily through handling individual complaints, is a balanced consideration of the impact that government administration can have on individuals.

‘Our external projects generally examine the systemic issues that arise from individual tax complaints.’

External projects we initiated and reported on during 2006–07 included release from tax debts on the basis of serious hardship, debt payment arrangements, aspects of the general interest charge, use of garnishee powers, compromise of tax debts, tax issues for Indigenous communities, review of ATO correspondence, the ATO mass communication strategy and 30% child care rebate.

External projects awaiting completion include superannuation guarantee, ATO audit activity on work-related expenses, lodgement compliance, penalties and prosecution. We also plan to commence a project on call management capability and delivery towards the end of 2007. The objective of this project is to review the effectiveness of ATO call centre operations with a focus on the ATO’s client service procedures that are designed to ensure tax officers find the right person if they themselves cannot assist a taxpayer with their problem.

We also have an ongoing outreach project focused on tax agents, to help and encourage them to raise issues of concern with this office.

Not surprisingly, debt recovery action leads to a significant proportion of complaints received about the ATO. In 2006–07 around 15% of all complaints related to ATO debt collection activities. For this reason, our external project work this year had a particular focus on aspects of the ATO’s debt collection practices.

Issues dealt with in the external projects conducted in 2006–07 are outlined below.

Debt payment arrangements

This project examined the ATO’s approach to administering arrangements to pay tax-related liabilities by instalments. In the context of overall ATO debt activities, our office receives relatively few complaints about payment arrangements. In the complaints we examined, some taxpayers perceived that the ATO was inflexible, particularly in its reluctance to agree to new arrangements following taxpayer default, and where there were changes to a taxpayer’s circumstances, including those involving compassionate or compelling personal matters.

In our report to the ATO, we recognised it is reasonable for the ATO to have regard to factors such as compliance history and risk to revenue. However, we did note that the ATO needs to continue to take care to ensure its decision-making processes provide an appropriate balance between its debt recovery obligations and the need to give genuine, proper and realistic consideration to an individual taxpayer’s circumstances. We suggested to the ATO that they may wish to consider making their guidelines more explicit in relation to the weight they afford to a taxpayer’s history of non-compliance when negotiating payment arrangements.

We also suggested that the ATO consider establishing a system for internal review of ATO payment arrangement decisions. Legislation does not provide for a formal system of objections and appeals, but it is open to the ATO at an administrative level to allow taxpayers to request review of adverse ATO decisions.

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Use of garnishee powers

Where a tax-related liability is payable, the Commissioner of Taxation may issue a notice requiring a person who owes money to the taxpayer to pay that money to the Commissioner instead. A third party is treated as owing money in various circumstances, including where that person holds money for or on account of the taxpayer—for example, a bank.

Although only a small number of our complaints relate to ATO garnishee action, we recognise that the impact of garnishee action on an individual can be significant. Taxpayers often see garnishee action as being premature, intrusive and unwelcome.

We examined the ATO’s approach taken to garnishee action as reflected in approximately 60 complaints received between July 2003 and June 2006. A public report was prepared (Australian Taxation Office: Administration of garnishee action (Report No 1/2007)).

We generally found the ATO had acted reasonably in taking garnishee action, acting only after other attempts to recover a debt had been unsuccessful.

We suggested to the ATO that it might be opportune to review its policy and practices, paying particular attention to:

• development of a specific practice statement about garnishee action
• better documentation of reasons for taking garnishee action
• the adequacy of reasons provided to debtors at the warning and notice issue stages
• the adequacy of guidance to ensure the issue of garnishee notices does not affect the taxpayer’s ability to appeal
• better statistical data
• complaints about garnishee action.

‘We generally found the ATO had acted reasonably in taking garnishee action ...’

The ATO welcomed our suggestions and will consider them as part of its ongoing commitment to listen and respond to community feedback. The ATO Chief Operating Officer has arranged for the best practice capability in the Debt business line to undertake a review of their administration of garnishee action including communication activities. The aim is to develop a framework of delivery based on our suggested themes.

Compromise of tax debts

The ATO defines ‘compromise’ to mean a permanent agreement not to pursue recovery of the balance of a tax debt. The Commissioner of Taxation’s power to compromise is implied from his general responsibility to administer tax law. While we receive few complaints from taxpayers who consider that the ATO has unreasonably refused to compromise their debts, we felt that this was an area worthy of closer examination.

On the whole, we were satisfied that the ATO’s processes and guidelines around compromise were appropriate, but made two general suggestions to the ATO for improvement. We suggested that the ATO could include more and/or better explanations in its publicly available information about the nature and limits of compromise, including those circumstances where it may be considered appropriate for the Commissioner to exercise his compromise power. Secondly, we flagged that appropriately edited examples of successful compromise cases might provide useful assistance to taxpayers contemplating applying for compromise.

Administration of the General Interest Charge

The administration of the General Interest Charge (GIC) was selected as a project because it generates a significant number of complaints to our office each year. The taxation legislation gives a discretion to the ATO to remit the GIC after it has been imposed as required by legislation. A taxpayer must apply for remission. The GIC also plays a significant role across a wide range of the ATO’s activities, particularly its compliance and debt recovery programs.

The primary focus of this project was to assess our complaint data to identify key issues arising about the ATO’s administration of the GIC. We identified three discrete themes—the level of GIC and its imposition, the ‘adequacy of reasons’ in communicating remission decisions, and the provision of advice.

In providing feedback to the ATO, we acknowledged that the ATO has a difficult task administering a penalty that some taxpayers consider punitive and unjust. We also acknowledged that the ATO has established clear policies on GIC remission to guide its decision makers in the exercise of the Commissioner’s discretion to remit the GIC, and generally the ATO appears to do so fairly and reasonably.

We noted that there might be more the ATO can do to help taxpayers better understand how GIC operates, how it is imposed, and how taxpayers might seek its early remission. The knowledge that a taxpayer can seek remission at an early stage in his or her dealings with the ATO could help improve community confidence in the ATO, as well as lead to a reduction in complaints. We also encouraged the ATO to continue to develop quality assurance processes and training to ensure ATO decision makers properly understand the law and policy with respect to remission of GIC.

‘... the ATO has a difficult task administering a penalty that some taxpayers consider punitive and unjust.’

We will continue to work with the ATO to address some of the issues identified in our review and may revisit this issue in the future.

The year ahead

In 2007–08, we look forward to expanding and developing the initiatives we identified in 2005–06 and carried over into 2006–07. We will continue with a work program of internal and external projects to improve our handling and understanding of tax complaints.