Is the Tax Commissioner one of Australia's Most Powerful People?
What powers are invested in the ATO and how far they can really go?
Last month, the Government announced that they intend to give the Commissioner of Taxation up to 60 days to hold activity statement refunds – including GST and other indirect taxes such as luxury car tax, wine equalisation tax, etc. - while verifying the claims made. For many businesses, waiting for up to an extra 60 days for the refund will have a major cash flow impact.
The issue got us thinking about the Commissioner’s powers in general and why they would need to be extended when they seem so extensive already. The Commissioner’s powers and approach are well documented and their view is that “If a tax debtor does not pay by the due date and does not contact us, we assume they are not going to pay.” The underlying message is clear, pay your tax or we will take action. You are expected to pay the ATO even if that means going into further debt or giving the Commissioner security against assets.
But if you don’t pay, what can the Commissioner do about it?
Without notice, the Commissioner can:
• Issue a 'garnishee' notice to someone holding money on your behalf
– for example a bank. For salary and wage earners, the tax office can require your employer to take part of your salary until your debt is paid. This is generally limited to a maximum of 30% of your salary. If you are a business, the ATO can go as far as accessing your merchant facility if you have a credit owing.
• Prevent you leaving the country.
• Impose a freezing order – for example, on your bank accounts. That is, without notice the tax office can freeze and then if required strip your accounts, particularly where they believe you have alternative sources of income.
• Issue writs or warrants of execution, or warrants of seizure and sale.
For example, they can force you to sell certain assets to pay your tax debts.
• Liquidate your company or bankrupt you. Most taxpayers don’t believe how strongly the tax office will act. The number of ATO wind-ups increased by 116% between the 2010 and 2011 financial years. That is, the tax office forced 1066 businesses to close last financial year. The tax office would argue that in many cases, the wind up forces the inevitable, and prevents further debt being incurred either to the ATO or other parties.
A trigger for hostile action by the ATO appears to be where they consider the taxpayer (or their income) to be a flight risk – for example, where you have overseas sources of income and support.
But, it might not stop there. The funding for Project Wickenby ends next year. Under this joint project, the tax office has been able to share information across Government bodies such as the Australian Crime Commission and Australian Federal Police, to pursue tax evasion – effectively using the powers invested in these agencies for a single purpose. Now, the tax office is seeking to extend their investigative powers.
On May 16, 2011 Treasury canvassed ATO “defensive measures” in a submission to Cabinet. Further law reform proposals are expected this year. Reportedly, the defensive measures include various coercive powers:
• greater use of telecommunications interception powers;
• expanding the definition of money in anti-money laundering laws;
• greater information exchanges with foreign governments;
• strengthened international debt recovery measures; and
• reciprocal recognition of foreign tax debts.
While much of the discussion is centred on inter-agency information sharing, the implications will extend well beyond this. The message for everyone is make sure you are on top of your paperwork. If the ATO has queries or suspects something is not right, you need to be able to respond. The longer you take or lack of evidence will only escalate the situation.