AAT potential powers to suspend or modify ATO debt recovery action
Small businesses engaged in taxation disputes with the ATO could soon have a cheaper way to suspend the implementation or operation of a tax decision that is being reviewed in the Small Business Taxation Division of the Administrative Appeals Tribunal (AAT).
This could potentially include the AAT making orders limiting or modifying the discretionary powers of the Commissioner of Taxation to recover a tax debt arising from the assessment that is the subject of the AAT merits review.
This is the potential effect of the Treasury Laws Amendment (Streamlining and Improving Economic Outcomes for Australians) Bill 2022 which is currently before the House of Representatives.
Current law
Under the current law, the Commissioner can commence debt recovery action even if a small business taxpayer is seeking a review of an objection decision in the AAT: a pending review of a taxation decision does not affect the decision and any tax may be recovered as if no review were pending.
This means that the Commissioner can commence debt recovery action even if the taxpayer is effectively seeking a review of the liability for, or the amount of, the tax debt (and may ultimately be successful on the review, such that the debt is effectively removed).
While a taxpayer can seek a court order to stay the operation or implementation of the decision (including debt recovery action), it can be costly and is difficult to obtain.
AAT power under proposed law
The Bill, if passed, will allow small businesses to apply to the AAT for an order instead of a Court, significantly lowering the cost.
The types of orders that the AAT may make at its discretion under these proposed new laws include:
- An order directing the Commissioner not to sue in a court to recover a specified amount relating to the reviewable objection decision;
- An order directing the Commissioner to offer or accept payment of a liability relating to the reviewable objection decision by instalments under a payment arrangement;
- An order directing the Commissioner not to issue one or more written notices to specified third parties who owe or may later owe money to the applicant taxpayer (e.g. a garnishee notice) as a means of recovering a liability relating to the reviewable objection decision.
These additional powers will not allow the AAT to make an order which would materially and permanently alter the underlying decision under review. For example, an order directing the Commissioner to remit unpaid general interest charge (GIC) on unpaid liabilities or deferring the time at which a tax liability is or becomes due and payable cannot be made.
The AAT will also not be able to affect the automatic operation of Commonwealth laws such as the accrual of GIC, nor will it be able to affect the operation of judicial remedies obtained by the Commissioner (e.g. warrants or freezing orders).
Legislative safeguards
The Bill contains safeguards to mitigate the risk of aggressive taxpayers such as promoters of tax schemes, phoenix operators, or others without a genuine dispute about an assessed quantum of tax, making applications to the AAT to frustrate the prompt recovery of genuine tax debts, or delaying recovery action.
These safeguards are contained in provisions of the Bill which specify that the AAT will only be able to make an order if the applicant taxpayer satisfies the AAT that, when considered in the context of the particular circumstances of the decision under review and the overall tax system, the application for review and the request for making the order are not frivolous, vexatious, misconceived, lacking in substance or otherwise intended to unduly impede, prejudice or restrict the proper administration or operation of a taxation law.
Conventional considerations
In addition to the above legislative considerations, the conventional considerations when deciding whether to make an order staying or otherwise affecting the operation or implementation of the decision under review will continue to apply. These considerations include:
- the prospects of success of the underlying application;
- the consequence for the taxpayer of the refusal;
- any public interest considerations;
- the consequences for the Commissioner;
- other matters the AAT considers relevant.
Burden of proof
Given the requirement for taxpayers to satisfy the AAT of the matters identified above before an order may be made, it can be expected that the burden of proof will be on the taxpayer (consistent with the usual approach in tax matters) to adduce sufficient evidence to establish its case for the making of an order. This might include evidence concerning:
- The basis of the dispute with the ATO and prospects;
- Business history and creditworthiness;
- Tax compliance history;
- Financial position and impact of debt recovery on that position and other creditors.
Assuming the Bill is passed in its current form, it will be interesting to see how the Small Business Taxation Division of the AAT practically deals with applications seeking a suspension or alteration of ATO debt recovery action. Taxpayers should be under no illusion that such orders will be granted by the AAT as a matter of course upon a request being made.
The burden will be on applicants to demonstrate that orders should be made. Whether that is an easy or challenging task remains to be seen. Much will depend on the particular facts and circumstances in each case.
Need help?
These potential new powers of the AAT do not affect your existing rights to seek review of taxation objection decisions. If your small business is having a difficult time dealing with the ATO, we can help you work out the best way forward. Contact us today for expert advice and assistance.
Disclaimer: The information on this page is for general information purposes only and is not specific to any particular person or situation. There are many factors that may affect your particular circumstances. We advise that you contact Mathews Tax Lawyers before making any decisions.