ATO’s interest on tax debt under fire as Ombudsman calls for action

The Tax Ombudsman is putting the spotlight on how the  Australian Tax Office (ATO) handles tax debt, and with interest payments adding up to a hefty add-on for businesses already drwoning in debt, she wants to hear from small business owners who are doing it tough.

What’s the gripe?

The drama centres on the General Interest Charge (GIC), which is slapped on when tax debts go unpaid. At the moment, it’s running at about 11 per cent. This interest rate is much higher than your average mortgage rate, and since July it’s no longer tax deductible. So, that little extra sting on top of your debt just got a whole lot nastier.

Tax Ombudsman Ruth Owen says her office has been flooded with complaints about how the ATO decides whether to reduce or wipe these charges.

“We’ve heard complaints about a general lack of consistency and transparency in the ATO’s approach to interest charges,” she explained. “It seems to be a matter of potluck as to who gets their interest reduced or remitted and who has to pay in full.”

ATO toughens stance on debt

The ATO has recently toughened up on debt collection, and that includes taking a firmer line on GIC remissions. According to Owen, fewer people are getting approved for reductions, which raises questions about what the tax office considers “fair and reasonable” when assessing people’s circumstances.

For some businesses, the interest itself quickly becomes bigger than the original debt. That’s before you even add in the stress of small businesses trying to keep the doors open. With households and businesses already feeling the pinch of higher costs across the board, the Ombudsman believes the system may be punishing people who are genuinely trying to do the right thing.

No easy way to fight back

One of the biggest headaches is that you can’t take a GIC remission decision to the Administrative Appeals Tribunal, like you can with a lot of other ATO rulings. The only formal option is to haul the case into the Federal Court, an action that’s completely out of reach for most small businesses. This lack of oversight means small operators are stuck with whatever decision the ATO makes, no matter how patchy or inconsistent it may seem. And with the Ombudsman’s office getting 134 complaints about interest charges in just the last financial year, clearly plenty of taxpayers aren’t happy.

GIC is punishing everyday Aussies

Owen suggests the GIC does serve a purpose; it’s designed to stop deliberate non-payers from getting an unfair advantage. However, she claims the rules are out of whack for people who are just trying to keep their heads above water, the impact can be devastating.

“This issue can affect the livelihood of small businesses and taxpayers already doing it tough,” she said. “Although the GIC is an important element of the tax system, it should not punish those trying to do the right thing.”

Have your say on tax debt

The Ombudsman is now running a review into whether the ATO is giving adequate reasons for refusing remissions, and whether the whole process needs a tune-up. She’s asking small businesses and tax professionals to share their stories – the good, the bad and the ugly – to help paint a full picture.

Submissions are open until 5 pm (AEDT) Friday, October 10. If you’ve copped what feels like unfair interest charges on a tax debt, now’s the time to speak up.

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