ATO compensation overhaul as government seeks to improve small business access to justice

The federal government has directed the Australian Taxation Office (ATO) to change the way it handles compensation claims for small businesses in a bid to improve access to justice by increasing transparency and fairness.

Announced Monday by Assistant Treasurer Michael Sukkar, the reforms involve Detriment Caused by Defective Administration (CDDA) complaints and will include increased ministerial oversight, better access to independent advice and an overhaul of complaint processing.

The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) has been directed to set up a new “assistance function” to help firms understand how to pursue CDDA claims, addressing concerns many SME owners are unaware of the compensation avenue.

The CCDA scheme is designed to provide redress to members of the public, including small business owners, for mistakes or poor administrative decisions made by government agencies, such as the ATO.

While the mechanism is just one compensation avenue available to taxpayers, it received 289 small business claims between 2013-14 and 2017-18, 174 of which were refused, according to a review of the scheme undertaken by the Department of Finance.

The department estimated small business compensation was $963,453 over that same five year period, with 27 of the 50 successful small business claims paying out less than $1,000.

The government has fully accepted most of the department’s June review into how the ATO handles small business CDDA complaints, which was originally announced last year amid a spate of pre-election access to justice announcements aimed at SMEs.

“The CDDA scheme can play an important role in supporting small business in the small number of cases where mistakes are made, and it is important that the scheme is understood and accessible to small businesses,” the federal government said in response to a review of the program.

Hands-on

Under the changes, some of which will be implemented by the end of November, the tax office will develop new processes for handling CDDA complaints, including splitting claims into categories by severity, which will then inform how they are handled.

ATO commissioner Chris Jordan and Treasury portfolio ministers will also be taking a more hands-on role in small business CDDA claims.

For instance, some serious cases will require the ATO to engage an “independent person” from outside the organisation to review claims, and where this occurs the tax commissioner will be required to step in and make a final determination.

“Communication with taxpayers will be enhanced to provide greater clarity about decisions and transparency of their review rights to enable better access to review of decisions,” the government said.

The financial and personal capacity of small business owners to respond to an ATO review, audit or another compliance process will also be worked into the tax office’s CDDA procedure in a bid to ensure this is taken into account by officials.

Ministerial oversight will be bolstered in the form of incorporating information about CDDA complaints into their briefings from the ATO; this process appears to have kicked off in June.

Accessing justice

Importantly, the government has directed the ATO to change its standard of proof in CDDA claims from the “balance of probabilities” to “plausibility”, which is designed to lower barriers for firms.

“Applying for compensation should be as easy as possible for small business taxpayers and the burden of demonstrating what has occurred should not be overwhelming,” the government said.

The department review, which concluded the CDDA scheme should be maintained but improved, said the “major concern” among small business owners was not defective administration, but the “disproportionate impact” of tax law and ATO enforcement on their companies.

Worries about the possibility of worst-case scenarios with tax debt disputes are a recurring theme in ATO debt collection reviews, which have also been undertaken by the small business ombudsman recently.

News of the CDDA overhaul comes after the IGTO’s 2018-19 annual report revealed a 13% increase in the number of complaints against the tax office, while small business savings from disputes skyrocketed last financial year.

In a statement published to its website Monday, the tax office said it has been considering the CDDA review recommendations with an interdepartmental committee.

“The introduction of an independent reviewer for the most complicated cases and the adoption of a lesser standard of proof will reassure the small business community that we support the making of fair and balanced decisions for small business,” the ATO said.

“We will be revising our guidance materials and engaging in an education and awareness campaign in the coming months to raise awareness about the CDDA Scheme amongst small businesses and tax professionals. This will improve access for small businesses seeking compensation.”

This article was updated at 1:40PM AEDT October 4.

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