Acting Inspector-General of Taxation and Taxation Ombudsman (IGTO) Andrew McLoughlin has today released the review investigation report into the Australian Taxation Office’s (ATO) use of garnishee notices.

The IGTO review was undertaken to maintain community confidence in the administration of the tax system after serious allegations were made by both a current and former ATO officer on the ABC 4 Corners program on 9 April 2018 about the ATO’s inappropriate use of garnishee notices upon small business. The allegations investigated were that the ATO:

• gave directions to staff to issue standard garnishee notices in every case as a ‘cash grab’ towards the end of the 2016–17 financial year; and
• set targets for staff and assessed their performance based on the level of debt collected.

Garnishee notices allow the ATO to recover taxpayer debts from 3rd parties like banks or trade debtors. If used inappropriately they can severely affect a taxpayer’s cash flow, in particular the more vulnerable such as small businesses and individuals.

“The review was extensive, with the IGTO investigation team using our strong investigative powers to go to operations sites in Melbourne, Penrith, Parramatta and Adelaide, to see firsthand ATO system operations and personally interview over 50 ATO staff during the investigation, as well as access ATO systems, information and records,” said Mr McLoughlin.

The ATO collection of revenue and tax debt recovery is vital for the benefit of government and services to citizens and must be done fairly and equitably, taking into account the particular circumstances of each taxpayer but also ensuring a level playing field for taxpayers paying on time, so as to foster a level playing field in support of the significant voluntary compliance levels our nation benefits from.

“The Report concludes problems did arise in certain localised situations for a limited period, particularly so at Adelaide’s local ATO site, but those problems were anticipated and addressed by management once they became aware,” Mr McLoughlin said.

“The allegations that there was an ATO direction for a ‘cash grab’ on small business or that debt staff personal performance were set on amounts collected – are not sustained,” Mr McLoughlin said.

The Report found that in the 2016–17 financial year, the ATO issued 23,712 garnishee notices—approximately 40 per cent less garnishee notices than the predicted 40,289. It also found that staff issued enduring garnishee notices in only 8 per cent of cases allocated to them, and at an average rate of 1 notice issued every 5 hours. These figures provide a strong basis for concluding that the ATO’s Early Intervention debt staff, in the main, took care to consider the appropriateness of issuing garnishee notices in light of the taxpayer’s circumstances and took their responsibility to consider the next best action policy seriously. This is not to say that all staff on all occasions have exercised that power proportionately and appropriately.

“Importantly, the IGTO notes in the Report that there were certainly small business people who were disaffected as the result of garnishee notices being inappropriately issued and they received support from the IGTO in resolving their complaints on contacting us. While it is a relatively small group as compared to the number of garnishee notices issued, it is very important that the system demonstrates care for disaffected taxpayers especially the more vulnerable including small business,” Mr McLoughlin said.

“The Report also offers a way forward for small business support via the Taxation Ombudsman’s free service to affected small business taxpayers as a first port-of-call where they are not able to resolve matters with the ATO directly,” Mr Andrew McLoughlin said.

Four recommendations were made in the Report, all of which were accepted and agreed by the ATO. They included:

• to have contingency plans for major assumptions used to estimate staffing resources needed for collection activities, to minimise the impact should the assumptions not hold;
• to improve the automated models which select garnishee cases for ATO staff to review and refine these models with feedback from staff, to remove taxpayers who are less likely to warrant garnishee action;
• to facilitate consistency of communications between ATO staff at all levels, for critical or complex messages where major changes to work focus occur; and
• improve support for the ATO’s Early Intervention debt staff by providing those staff with direct feedback on cases they work on, and by incorporating role-playing exercises into training sessions, both of which support better staff decision-making.

The 2016–17 year for the ATO was a challenging one — with the House of Representatives Standing Committee on Tax and Revenue dubbing it ‘annus horribilis’. The Review considered events that had ATO-wide impact, including major IT system outages and changes that the debt business line needed to make as a result. These changes raised risks, one of which was the use of enduring garnishee notices, particularly at the Adelaide site over a 3 month period, but once identified by management, was addressed.

The Report analysis draws upon the full range of facts and evidence in reaching its conclusion across the ATO and debt business line areas in addressing the allegations, including all relevant plan and other reports, metrics, statistics, management communications, interview testimony, and accounting standards for reporting tax collections.

Importantly, employment issues regarding current and former ATO staff are not within the IGT’s legislative purview and were not part of this review.

SYDNEY
13 March 2019
Media contact: (02) 8239 2111