ATO ‘robotax’ debt recovery letters prompt new guidelines from government watchdogs

The Australian Taxation Office (ATO) has again acknowledged its efforts to recover billions of dollars worth of ‘on hold’ debts from small businesses and individuals in 2023 caused “distress” to some of those affected, and has committed to improving the way it communicates about debts owed to its office.

The renewed commitment followed the release on Tuesday of a new set of guidelines from the Commonwealth Ombudsman Iain Anderson and Inspector General of Taxation Karen Payne for how government agencies should inform Australian businesses and individuals about debts.

The guidelines are a direct response to the thousands of letters unexpectedly sent by the ATO in late 2023, which notified taxpayers and accountants that debts considered ‘on hold’ were liable for collection.

The ATO had not pursued these ‘on hold’ debts in recent years, in part due to the leniency it adopted during the Covid-19 pandemic, however, the amounts technically remained payable, either through tax returns or credits accrued by the taxpayer.

At the time, accountants told SmartCompany some of these debts were for as little as 31 cents. Others were for thousands of dollars and many were incurred years ago, but together reportedly totalled more than $15 billion.

The recovery activity was likened by some to the fraught robo-debt scheme, and resulted in the ATO pausing the letters in November 2023.

ATO and others told to be upfront about debts

Releasing the guidelines on Tuesday, Anderson and Payne said while government agencies may legally be required to collect debts, they have a responsibility to ensure this is done “in a way that minimises distress to affected and impacted people”.

With the straightforward title of ‘How to tell people they owe the government money‘, the rulebook’s five guidelines recommend government agencies be transparent and accountable; tell people what the debt is and where it came from; provide clear information for requesting review, debt waivers and repayment arrangements; provide contacts for people to find out more information; and learn and improve.

The document also features a number of case studies, including one about the ATO’s debt recovery efforts in 2023.

Some 200,000 letters were sent out about “very small tax debts”, according to the report.

“People reported the letters did not explain how or when debts were incurred, causing concern and confusion about their validity,” the report states.

“The age of some debts made it difficult to verify or indeed challenge them, as people no longer held relevant records.”

A major problem, according to the Ombudsman and Inspector-General, is that the ATO had failed to learn from the past, including a report from the Ombudsman in 2009 that made “specific detailed recommendations on how the Australian Taxation Office should improve its communication with taxpayers about decisions to write-off or re-activate old debts”.

The tax office had also received feedback from tax professionals and recommendations in a number of IGTO reports about undisputed tax debts and taxpayer rights to complain, review and appeal, they said.

“Don’t just re-commit past failings!” said Anderson and Payne.

“The community is entitled to expect agencies have a corporate memory.”

ATO agrees with new guidelines

The ATO welcomed the new guidelines on Tuesday and said it agrees with the five principles outlined by the Ombudsman and Inspector-General.

The ATO reiterated that it does not actively seek payment of ‘on hold’ debts, but said it recognises its “recent communication about these debts caused distress – especially for those debts incurred several years ago”.

“In response to this, in November 2023, we paused the debts on hold awareness letter campaign and are reviewing our approach to improve how we communicate with taxpayers.”

The ATO said while taxpayers don’t need to take any action in relation to ‘on hold’ debts, the tax office has a legal obligation to use any credits or refunds to reduce the amount of the debts on hold.

“For debts placed on hold since 2017, this will typically happen when a taxpayer lodges their tax return,” the ATO said in a statement on Tuesday.

“For debts placed on hold prior to 2017, the ATO has paused all action whilst a review is undertaken. The ATO will not use the credits or refunds from taxpayers to reduce these debts. No decision has yet been made regarding the outcome of this review.”

The ATO said it is committed to improving its communications to taxpayers about debt using the guidelines provided by the Ombudsman and Inspector-General.

“It’s important that taxpayers have trust in our tax system and clear communication is critical to building trust and confidence.”

SmartCompany has contacted the Inspector-General of Taxation for further comments.