Accounting Network Newsletter – February 2016

Corporate Finance & Restructuring

February 29, 2016

We are pleased to provide you with the latest edition of our Accounting Network newsletter. In this issue, we take a closer look at the Inspector-General of Taxation’s (IGT) review of the Australian Taxation Office’s (ATO) debt collection practices and have included some of the more interesting commentary and ideas from the IGT’s 2015 report. We also highlight some facts and figures around the level of tax debt, the impact of firmer action recovery methods, and data on ATO-initiated winding ups.

As always, we’re keen to hear from you should you have any questions or feedback, so please don’t hesitate to get in touch.

The executive summary to the IGT’s report1 gives the reasons behind the review of the ATO’s debt collection practices and approaches, citing:

“… concerns related to the ATO’s ability to recover tax debts effectively whilst ensuring that its actions were proportionate to circumstances of the affected taxpayers”,

whilst also noting the:

“… continual growth in collectable tax debt over the last decade to more than AU$20 billion in 2013-14 and its potential impact on government services … The ATO has acknowledged that its previous approach to debt collection was ‘random and ad hoc’ and had not reduced its overall growth… “.

What we see from the report is a change in the ATO’s approach to debt, with their strategies and projects focussed on understanding taxpayer behaviours:

  • The rationale is that from analysing taxpayer’s attitudes to debt and how they behave, the ATO can design and implement better debt prediction and debt recovery tools.
  • While the aim is to prevent a build-up of debt in the first place, where debts do arise, the outcome envisaged is that the ATO will be better placed to resolve those debt issues more effectively.
  • The ATO and IGT also recognise that as debt gets older, it is harder to collect. To counter this requires earlier engagement with taxpayers and earlier action to be taken.
  • As a result, we expect the ATO to continue to research and develop better credit risk assessment tools and continue to develop a more proactive approach to debt management as part of its behavioural approach.
  • We also expect that the current suite of recovery and firmer action tools available (such as garnishees and Director

Penalty Notices) will continue to be used where taxpayers are not proactive or don’t engage with the ATO to resolve their debt issues.

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