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  • Special Legal Practitioner Round Table – Debt focus key messages 11 August 2017

    Future of the Tax Profession

    The ATO recognised that legal practitioners are a vital part of the broader tax profession. The ATO wants to continue working with the profession.

    Legal professionals are one of the 12 identified intermediaries that the ATO is now focusing on and in terms of importance, rank within the top three.

    The ATO's Intermediaries and Lodgment area is looking to better understand the legal practitioner’s role as an intermediary and how this plays out for their clients. This includes consulting the legal profession on matters such as accessing ATO systems and finding the ‘right door’ into the ATO on certain matters.

    The ATO advised the group of the Inspector General of Taxation's Review into the future of the tax professionExternal Link. Submissions are now closed however, the IGT has advised that they will consider further submissions - these can be emailed to taxprofession@igt.gov.au (deadline for submissions is 12 September 2017).

    The ATO is holding a symposium on the Future of the Tax Profession on 24 November 2017 in Melbourne. The symposium will focus on three key areas:

    • future of work
    • digital transformation
    • capabilities of the next generation of tax professionals.

    The ATO advised that a paper will be shared with this group after the symposium.

    General discussion by members about the role of the law within the tax system being critical – integrity is paramount and the influence of the law should be properly recognised.

    Garnishee and freezing orders

    Questions were raised at the 8 May 2017 Round Table meeting regarding the ATO’s use of garnishees and freezing orders. The ATO's Debt area provided the group with an overall context of the use of both instruments. Garnishees are one of the routine methods used to collect debt where, in contrast, freezing orders are a specialist tool applicable only in certain circumstances, ie in matters subject to court proceedings, and are, consequently, used by the ATO sparingly.

    Members raised concerns about the impact on taxpayers, if they are not left with sufficient funds in their bank account for living expenses following a garnishee. The ATO is aware that financial institutions can sometimes unilaterally act when receiving an enduring garnishee notice to then freeze the bank accounts of the taxpayers. When the ATO becomes aware of such circumstances, this commonly prompts a discussion between the ATO and the relevant financial institution to attempt to resolve the matter, though the decision as to whether to freeze an account remains that of the financial institution.

    The ATO's Debt area informed the group:

    • that generally not all funds in a bank account are garnisheed; the ATO’s policy and practice includes giving consideration to leaving sufficient funds to meet reasonable expenses, and there is commonly a cap on garnisheed amounts set at around 30% of the available funds
    • despite the large number of garnishees issued in a year (around 25,000), less than 1% of garnishees are the subject of a formal complaint.
    • garnishees are only used after the ATO has extensively tried other means of engaging with the taxpayer, including phone, letter and, where relevant, contact with an appointed intermediary.
    • the majority of garnishees issued are point in time (as opposed to enduring garnishees), and the intention of the point in time garnishee is to ensure that a portion (typically 70%) of the funds remain in the bank account, unaffected by the garnishee. It should also be noted that banks do not typically freeze accounts in response to a point in time garnishee.

    Other concerns raised by the group included:

    • the issuing of garnishees while active negotiations are occurring between the ATO and the taxpayer’s representative to resolve debt matters
    • the impact on a taxpayer’s reputation arising from the issue of garnishees
    • the level of appropriate checks and balances that occur prior to issuing a garnishee
    • the Debt and Part IVC (objections and litigation areas) do not appear to be communicating well
    • writs being issued late after prior ATO action (in some cases years later).

    It was acknowledged that there did not appear to be any wider systemic issues regarding the use of garnishees by the ATO – as evidenced by the proportionately very low number of complaints. The concern was not with the policy regarding garnishees but with what can occur at the margins. A number of ‘rare and one-off’ cases were referred to, where the taxpayer had allegedly been considerably impacted by the ATO’s use of garnishees. This is likely to be a particular concern in the situation where there is a Part IVC matter which the taxpayer is defending and which is perceived to have merit, while noting perceptions of merit may differ on either side of a case. Some practitioners suggested that these cases may require closer attention and an escalation process and senior escalation point put in place so as to allow for discussion between the practitioner and the ATO prior to issue. In exploring this issue, it was noted that in some instances it is the issue of a garnishee, itself, that may prompt the taxpayer’s first engagement with a legal practitioner, and, further, that there is a practical limitation to the capacity of the ATO to forecast which of the 25,000 garnishees issued may fall into the very small number that cause a genuine problem which could be ameliorated by prior escalation and review.

    The issue of whether the risk to revenue could be more appropriately mitigated by the taking of security over assets was raised. The ATO stated, while it does take security, the default position is to expect payment, especially when the taxpayer has the capacity to pay. The taking of a security is not considered to be an alternate option to payment arrangements or an offer of a 50/50 arrangement for a disputed debt; but that securities are offered as a last resort alternative to legal action and in limited circumstances. The ATO did not want to be in the position of being seen as the holder of securities.

    The ATO emphasised that what action is appropriate in each case depends on a detailed consideration of the individual circumstances of the taxpayer. This is always paramount. For this reason it is difficult for the ATO to publish guidance documents or set out a policy position for every arrangement.

    The ATO invited the group to put forward ten (10) to twelve (12) cases for the ATO for review. These would be those marginal cases where the taxpayer has been seriously impacted by the garnishee. These cases would be analysed to determine if there were systemic or process-related issues that impacted the outcome and if opportunities for improvement existed.

    Means of resolving an undisputed debt

    The distinction between the terms ‘settlement and compromise’ of a debt was raised at the 8 May 2017 Round Table. In addition, the profession made the ATO aware that they use the term ‘settlement’ in a broader way than the ATO currently does.

    To provide some context for the discussion, the ATO prepared a short paper which set out the different ways the ATO can resolve an undisputed debt – this paper was made available with the agenda.

    ‘Compromise’ means to permanently agree not to pursue recovery of the balance of an undisputed debt (See PS LA 2011/3 Compromise of undisputed tax-related liabilities and other amounts payable to the Commissioner for further detail), in other words, agreeing to accept a lesser amount and agreeing not to pursue the balance.

    Taxpayers may apply for release on the grounds of financial hardship and the Commissioner may grant a release of the debt owed to the Commonwealth.

    The ATO informed the group that:

    • Parliament stipulates what the Commissioner can do in legislation. The Commissioner’s power to compromise is not unfettered and can only be properly exercised using the Commissioner’s power of general administration, recognising that Parliament has already provided specific provisions that give the Commissioner the discretion to remit interest charges and penalties and to release certain debts but not others. By comparison, a ‘compromise’ of a debt, is only available in very limited circumstances.
    • The ATO is not a commercial client.
    • The ATO is continually working on making it easy for taxpayers to pay their debts and encouraged members to use the ATO’s payment plan estimator.

    Consultation

    The ATO updated the group on the two consultations it ran during July using the online Let’s Talk – Legal practitioner community. These online consultations were undertaken on a trial basis so as to gain insights into how the profession can better connect with the ATO on a range of matters. The intent was to conduct the consultation with a view to better understanding and preparing for the August meeting.

    While there were a relatively significant number of visitors to the online discussion, this did not convert to the profession leaving comments on the discussion board or partaking in the survey. Advertising on social media, in particular LinkedIn, seemed to generate the greatest amount of interest by the profession.

    Members commented that the registration process was timely and difficult. Given the busy nature of the profession, this meant that practitioners were unlikely to participate in these types of discussions.

    Members from the group expressed the view that the ability to come to meetings such as the Round Table and to engage in rich conversations on topics of importance and interest was what the profession was seeking most from the ATO. It was not realistic to expect a response from the profession in anticipation of a meeting.

    The ATO recently issued a draft document – FAQ for legal practitioners: What to do if your client has a debt with the ATOExternal Link on 5 July 2017. This document was produced in response to comments from the profession about the profession’s interaction with the Debt business line. Feedback provided during the Round Table was that the document was excellent and would be helpful when dealing with clients.

    However, members of the group expressed the view that the document did not cover off on debt matters where a case officer has not been allocated by the ATO. In these instances, some members of the profession relied on personal connections within the ATO’s Debt business line to deal with such matters, as they found dealing with the general numbers was frustrating, time-consuming and also expensive for the client. The group expressed the view that they would prefer a central point of contact to deal with such matters.

    The ATO acknowledged that the business model for the Debt business line does not generally provide for a dedicated case officer in all but a very small minority of high risk cases, as well as noting that reliance on personal connections is both administratively inefficient as well as being unsuited as a general method of access for all practitioners. However, in view of the potential demand and resources required for a centralised service, further consideration would need to be given as to what the ATO could realistically provide (and how this might be done). The ATO would return to the Round Table members with a proposal.

    Action items

    Action item LPRT 1708/1

    Round Table members to put forward ten (10) to twelve (12) cases for the ATO for review. These would be those marginal cases where the taxpayer has been seriously impacted by the garnishee. The ATO's debt area will review and report back at the next Round Table meeting.

    Action item LPRT 1708/2

    Debt to consider providing a service to the profession in instances where a dedicated case officer has not been allocated. Proposal to be provided to the Round Table members.

      Last modified: 19 Sep 2017QC 53320