Undisputed debts to the Australian Taxation Office increased by 77.6 per cent since 2016-17, with a review by the independent watchdog finding the majority is owed by a small number of taxpayers.
Inspector-General of Taxation and Tax Ombudsman Karen Payne launched an investigation into the ATO’s growing $45 billion debt book in late 2019, after a $7 billion increase in uncollected, undisputed tax debts.
The report released on Wednesday considered debt which is not subject to objection or appeal by taxpayers and is not subject to some form of solvency administration, finding not all of the growth is related to disruption from the COVID-19 pandemic.
Collectable debt levels reported by the ATO have grown from $19.2 billion in financial year 2016, to more than $34.1 billion in financial year 2020. In the same period, tax liabilities increased by just 16.42 per cent.
About 60 per cent of collectable debt rests with small and medium-sized businesses, but 5.09 per cent of taxpayers were responsible for more than 63 per cent of cash owed to the ATO.
Just 1.22 per cent of accounts represent 43.44 per cent of individual collectable debt amounts, with the average per account $172,070.
Complaints about tax debt was the number-one complaint we were receiving, pre-COVID.
— Karen Payne, Tax Ombudsman
Ms Payne found common ATO payment plans, which can be automatically set up by taxpayers for debts less than $100,000, are not well known and their use has fallen. That leaves business and individual taxpayers without a key assistance measure to repay debt obligations.
Repayment plans have existed since 2014, with some provided on an interest-free basis.
“We started the review because complaints about tax debt was the number-one complaint we were receiving, pre-COVID. It was also apparent when you look at the raw numbers from the ATO that collectable debts were increasing,” she said.
“We thought it was a good opportunity, particularly in light of the fact that the economy is going to be in a recovery phase coming out COVID-19, to help people struggling with tax debts to access the automated system.”
Among five recommendations from Ms Payne’s report are calls for the ATO to consult widely on better reporting of debt levels, new metrics for the ATO to track its debt collection performance and a new report to Parliament detailing debts which exceed benchmarks on dollar value and age.
Institute of Public Accountants general manager for technical policy Tony Greco said COVID-19 would be a significant factor in the size of the ATO debt book for the period ending June 2021.
Ninety-five per cent of collectable debts were currently paid within 90 days.
“Improving the performance of managing tax debt is particularly important as Australia repairs its finances in a post-COVID world,” Mr Greco said.
“It is also important to maintain public confidence in our tax system and the perception that there is a level playing field, otherwise it could impair our high level of voluntary compliance.”
Separately on Tuesday, Assistant Tax Office Commissioner Tim Loh reminded taxpayers that waiting until the end of July to lodge their annual tax return helped to ensure essential data was pre-filled.
Data from banks, financial institutions, private health insurers and government agencies is automatically collected to speed up the lodgment process, helping taxpayers and ensuring any refund arrives more quickly.