CA ANZ Australia tax leader Michael Croker said that common concerns have been about the timing of this consultation and whether there is adequate resourcing of the AAT to ensure the successful implementation of this measure.

“Other members that are involved with resolving tax disputes with the ATO are concerned that the burden of proof placed on small businesses by the exposure draft legislation is too great to achieve meaningful change,” he said.

“From our insolvency members comes the concern that this policy reflected in the draft legislation may be used as a delaying tactic by a small business under financial stress which has the potential to erode returns for creditors of that business.”

Mr Croker noted that usually, Treasury would have consulted extensively with the ATO both before and during the development of the exposure draft.

“Consequently, the ATO would have had many opportunities to have its views incorporated into the exposure draft. A one-week public consultation during January when many people are on leave makes it difficult to provide a response to the exposure draft legislation,” he said.

“The lack of an appropriate consultation period and the timing of the consultation period mean that comments received may not encompass concerns that many of our members have regarding the exposure draft. It is recommended that the consultation period be extended to the usual six weeks.”

AAT resourcing needs supplementing 

With the AAT receiving new powers to pause or modify debt recovery action, some practitioners who specialise in tax dispute resolution have expressed the view that the AAT may not have adequate resources to ensure that this initiative is implemented effectively, according to CA ANZ.

These concerns appear to be supported by recent AAT statistics that indicate that time taken to deal with small business taxation issues has been increasing.

The AAT’s 2021 annual report also noted that the AAT had 13 fewer members at the end of the reporting period compared to the previous year and it states: “Recognising that we are not sufficiently resourced to substantially reduce our significant on hand caseload, we will continue to engage with Government about additional member appointments, commensurate increases to staffing levels to support members and appropriate funding.” 

“For this proposal to succeed, the AAT needs to be adequately resourced,” CA ANZ stated.

“The Treasurer is likely to be asked in Parliament whether additional funding has been provided to the AAT and if so, whether it is adequate to allow the AAT to fulfil this new role. CA ANZ suggests that the Treasurer’s Second Reading Speech address this issue.”

Increased burden of proof

In the submission, CA ANZ noted it is often difficult for even experienced tax agents to effectively engage with ATO debt recovery and audit review teams. For example, it is common for the ATO to be taking action to recover debt when the compliance and appeals areas of the ATO are still negotiating with a taxpayer and reassessing the merits of a taxpayer’s position in a dispute.

“In this situation, the response of the compliance and appeal areas of the ATO to a complaint about the debt collection is to simply point out that the issue of recovery is out of their hands, despite it seeming to be appropriate that debt recovery be delayed for a period,” CA ANZ said.

“Liaising with the ATO debt recovery team is difficult as it tends to view debt recovery as a procedural matter, with little real weight given to the merits of a taxpayer’s position. 

“In principle, bringing the AAT (an independent party) into the picture to oversee recovery action by the ATO is welcome – particularly as AAT statistics regarding the operations of the AAT during the year ended 30 June 2021 indicate that most applicants to the small business taxation division are self-represented.”

The proposed draft provision is, however, difficult for taxpayers to utilise. For example, CA ANZ observed the burden is on the small business taxpayer to satisfy the AAT of all the matters in the provision, such as that “the order is unlikely to undermine the objective or purpose of a taxation law”.

“Placing such a high onus of proof on a small business (particularly an unrepresented one) enhances the Commissioner’s position and places an unrealistic burden of proof on a small business with limited resources and little or no legal expertise,” CA ANZ explained.

“This seems contrary to the intent of this measure as outlined in the Explanatory Memorandum at 1.13 ‘to provide a cheaper, faster and simpler way to pause the effects of a taxation decision on a small business entity’, It is not clear from the exposure draft whether, if a taxpayer applies to have the AAT pause or modify a debt recovery action, the Commissioner will be obliged as a matter of procedure to place material before the taxpayer and tribunal regarding previous debt recovery decisions.

“CA ANZ recommends that it should be made clear that the Commissioner is obliged to provide the equivalent of ‘T’ documents in relation to his initial debt recovery decisions at the beginning of the process, and to make submissions addressing his perspective on each of the points in the new Sec 41 (3A) of the AAT Act.”

Preventing creditor abuse 

Some members of CA ANZ specialising in insolvency are also concerned that this proposed provision could sometimes be inappropriately used as a stalling tactic for the payment of tax debt, particularly when a wind-up application is being threatened. This has the potential to erode returns for creditors of that business.

“Suggestions have been made that the taxpayer should show that they have disputed the ATO decision in a timely manner and that the small business will be solvent if it is successful in the dispute,” CA ANZ added.