Public and media pressure prevented the tax office from stepping up to pay down debts owed by small businesses battling the COVID pandemic, previously secret internal documents have revealed.
- The ‘sense of community’ was noted in the way the ATO chased debt
- The taxman didn’t ask for refunds during the pandemic – but they restarted
- Threat of dobbing succeeded in getting refunds
It precedes an expected growing wave of businesses going bankrupt, as the Australian Taxation Office pursues debts it has not pursued since the start of 2020.
Reports, obtained through the Freedom of Information (FOI) process, reveal a softer approach to texting, sending blue orange letters rather than ‘hard’ and dropping a ‘ stronger action” in favor of “help and assistance” for small businesses.
As the ATO hailed its new approach to small business debt in October 2021, in a report titled “Background”, it urged staff to understand why.
“The ATO is aware that the small business market has been one of the hardest hit groups during COVID-19 and associated lockdowns. Media and community sentiment have reflected both support and fragility of this market segment and the ATO has been proud of its role in supporting small businesses through the stimulus package,” the document states.
The scale of the problem is enormous.
As of August 31, 2021, the tax office had issued 842,845 reminder letters, about 55% of which were targeted at small businesses.
At the time of contacting the ATO for this article, it had sent warning letters about unpaid debts to 29,552 businesses.
Another 52,319 warning letters about the potential for Director Penalty Notices (DPNs) were sent to managers at these companies.
“These programs are focused on those who have not responded to our calls and letters – and who have significant outstanding tax obligations,” an ATO spokesperson said.
In the FOI documents, the executives told staff: ‘We also note that there is significant concern in the community that many businesses were entirely dependent on stimulus measures during COVID and that they are being cut and scaled back, these businesses may not be able to weather the business disruption of the pandemic and will not be viable.”
ATO Credit Report Threats Work
The tax office is not waiting for the money to arrive.
A threat to dob companies with tax debts to credit reporting agencies – which could cause that company’s customers to stop doing business with them – worked.
“The purpose of disclosure is to help other companies make informed decisions about who they do business with. The outcome we seek is behavior change and engagement rather than actual disclosure,” says the document, describing the bet.
“Thanks to their commitment, we made no disclosures and 69 clients re-engaged with us to manage a total debt worth $6.5 million.”
But a softer approach is notable, especially after ABC reports that revealed the rough treatment of taxpayers in dispute with the ATO.
In previously secret documents, the tax office outlines its new pandemic-inspired approach.
“Throughout COVID, the ATO has suspended its tougher and stronger actions, seeking instead to re-engage with help and assistance while businesses manage the effects of the lockdowns,” it read.
“The number of early intervention letters (blue) has continued to increase from previous years as we continue to engage with small businesses throughout the bushfires and COVID-19 offering help and assistance .
“During this same period, however, the number of letters with a firmer tone (orange letters) decreased, reverting instead to lighter blue letters.”
How do you know that
The Access to Information (FOI) system allows you to request information from government departments and agencies.
Search “FOI” on the department or agency website to find the email address to submit a request.
Costs may be involved if you continue with a request and there are several reasons for rejecting requests or removing information.
Of the 18 pages disclosed to the ABC in this request, eight are completely redacted and 10 are partially redacted.