ATO Tax Compensation

Since the ABC Four Corners program aired earlier this year, which raised allegations of misconduct in some ATO dealings with small businesses, the Inspector-General of Taxation has revealed that complaints to his office have increased significantly. For many of these small business owners, thoughts of justice and compensation may be at the forefront of their minds. Although getting compensation from the ATO is technically possible, in reality, it is extremely limited in scope and a great deal of supporting information is required for any claim.

To apply for compensation, businesses will need to complete the “Applying for compensation form” on the ATO website. The form requires some basic information (such as business name, TFN, address) as well as answers to questions relating to why you think you’re entitled to compensation from the ATO. Once the form is received, the ATO’s service standards indicates that it will be acknowledged in writing within 7 business days of receipt, and initial claims should be processed within 56 days.

Broadly, claims for compensation are assessed in two ways, either compensation for legal liability (e.g. negligence) or compensation under the Scheme for Compensation for Detriment caused by Defective Administration (CDDA Scheme).

The claims are considered by officers in the ATO’s General Counsel division and the decision makers are independent of the area which originally dealt with the taxation matter. If it is determined that compensation of either type (i.e. legal liability or CDDA) is not appropriate, small businesses may still be eligible for an “act of grace” payment from the Department of Finance. Such payments are even rarer than compensation.

If you’re intending to apply for compensation, you should know that the CDDA Scheme is very narrow and only financial losses with a direct connection to the ATO’s actions will be allowed. This includes for example, reasonable professional fees, interest for delays in providing funds in some cases, and bank or other administrative fees incurred due to the ATO’s actions. Losses relating to the following will not be considered:

• claims for personal time spent resolving an issue;
• claims for stress, anxiety, inconvenience;
• claims for delay in receiving funds from the ATO where statutory interest was paid;
• claims for costs associated with complying with the tax system including costs associated with audits, objections and appeals, even where it is found you complied with your obligations;
• costs of putting in a claim or conducting a claim for compensation; and
• claims for taxation or other Commonwealth liabilities with substantive review rights that can be or could have been pursued.

Further limiting the scheme is the need to provide concise details of the actions of the ATO that you consider have caused your loss supported by evidence. The ATO considers that a claim or allegation that is expressed too “generally or broadly” is difficult to assess and that an allegation, no matter how serious or how strongly it is expressed, is not evidence itself. Therefore, to be successful under the limited range of compensation available, you will need to provide documentary evidence to support your allegations and detail the financial losses that were suffered (such as invoices or statements of accounts from professional advisers or banks).

If you’re unsuccessful in your compensation claim you can apply for an internal review in cases where you can provide new or relevant information in support of your claim. Otherwise, you may also apply to the Inspector-General of Taxation to investigate the ATO’s handling of your compensation claim. Whilst the Inspector-General does not have the power to overturn or vary an ATO decision, they may make recommendations to the ATO about how the claim was handled.