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On 30 November 2021, the Taxation Law Committee and SME Business Law Committee of the Business Law Section (BLS) of the Law Council of Australia provided a submission to the ATO’s consultation on understanding approaches to working with vulnerable clients to identify opportunities to improve the client experience.
The submission was named ‘Improving how the ATO deals with vulnerable taxpayers’.
Along with other members of the BLS, our firm assisted in preparing the submission, with our Principal, Bruce Collins being the convenor of the BLS working group.
This is an area that we are very passionate about, and where we want to see the client experience improve, to assist both vulnerable clients and other practitioners in better engaging with the ATO and to have greater access to justice where the client needs legal assistance.
The BLS submission can be accessed at: https://www.lawcouncil.asn.au/publicassets/bbe4b72c-fc56-ec11-9444-005056be13b5/4134%20-%20Improving%20how%20the%20ATO%20deals%20with%20vulnerable%20taxpayers.pdf
What is vulnerability in the tax context?
Relevant vulnerabilities that may negatively affect taxpayers’ tax and superannuation compliance include; serious physical illnesses, serious mental health conditions, family or elder abuse, lower socio-economic circumstances, financial crises, natural disasters and combinations of one of more these vulnerabilities.
As outlined in the BLS submission, vulnerabilities faced by taxpayers ‘may prevents them from being able to fully comply with their taxation and superannuation system obligations’, as well as preventing them being able to effectively engage with the ATO when problems arise. In addition, as we have seen in practice, ATO enforcement actions may negatively impact taxpayer’s vulnerable situations.
What the case examples provided by BLS members showed was a correlation between physical and/or mental health illness and financial problems. We saw situations where clients were suffering from physical or mental illness and had to step away from their businesses to focus on their recovery, or were otherwise unable to work, and saw that this usually resulted in financial vulnerability. Vice versa, we also saw examples where taxpayers suffering from financial crises then experienced sharp declines in their mental health and even their physical health.
What is the current ATO information provided to assist vulnerable taxpayers?
Currently, the ATO has information on their website regarding specific vulnerabilities that taxpayers may be facing. These include: financial vulnerabilities (including the loss of employment, housing crisis, loss of essential services, marriage and relationship breakdown), people with disabilities and carers, Aboriginal and Torres Strait Islander peoples, culturally and linguistically diverse, ‘everyday pressures, unexpected life circumstances, stress, depression or anxiety’.
For example, when COVID-19 first started to negatively impact business and the wider economy, the Government was quick to offer various grants, extensions and relief from taxation obligations, which were implemented by the ATO at great speed. Similarly, when the 2019/2020 bushfires occurred, impacting many people across Australia, the ATO was quick to update their online information about grants, extensions of time and potential relief from taxation obligations.
The ATO website provides also links to the following organisations where taxpayers can obtain assistance:
Currently, the ATO recommends that taxpayers contact their tax agents or other advisors to assist them with engaging with the ATO, where the taxpayer faces vulnerabilities. Unfortunately, for some taxpayers facing financial vulnerabilities, they may not have the funds to access appropriate tax representation.
Further, tax representatives are not generally equipped to deal with, or effectively respond to, or counsel clients who are facing serious mental illnesses. This runs the risk not only of harming vulnerable taxpayers, but also affecting such practitioners who may be overwhelmed by their clients’ dire mental health circumstances.
What was seen as missing from the ATO guidance?
The current ATO guidance to vulnerable taxpayers only covers ATO assistance on payment plans, applications for serious hardship and referring taxpayers to tax practitioners for assistance. There is no information on ‘how the ATO can actually help to address a vulnerable taxpayer’s difficulties in meeting their tax obligations’. Importantly, the assistance offered is currently limited to a small list of circumstances and does not consider the wider variety of life circumstances that may negatively impact taxpayers and make them ‘vulnerable’.
Specifically, the BLS review found a lack of reference to a variety of mental illnesses beyond depression and anxiety. By not addressing the variety of mental illness that can impact taxpayers, taxpayers and practitioners are left confused as how to notify the ATO of the vulnerable taxpayer’s circumstances, how the ATO will deal with this information, how they may respond and what information the taxpayer needs to provide to substantiate their circumstances.
As stated in the BLS submission, member experience was that ‘taxpayers and tax professionals receive varying responses from ATO staff’. In addition, BLS members ‘reported that their experience with ATO officers is that there appears [to be] little recognition or understanding that financial problems can create mental or even physical health problems and that physical and/or mental health problems can create financial problems’.
What are the practical issues identified in the BLS submission when engaging with the ATO?
Practical issues that BLS members encountered when engaging with the ATO included:
1. Difference between immediate aftermath of ‘natural disasters’ and longer-term impacts,
2. Differences between ‘natural disasters’ and individual vulnerability,
3. Delays in seeking diagnosis and treatment,
4. Retrospective evidence of vulnerability,
5. Objective evidence of physical vs mental health conditions,
6. Risks of false claims of vulnerability, and
7. Regulatory disincentives of sharing vulnerability with Government
The BLS submission included a number of complex case studies in Section 2, 3 and 4 of Attachment A (which have been redacted and change to remove identifying features and protect the privacy of vulnerable taxpayers). The general themes of case studies experiences by BLS members included:
What recommendations were made by the BLS to the ATO?
The BLS made the following recommendations to the ATO for specific policy and practice changes:
1. The wide range of ATO decision-making on the above touchpoints affecting taxpayers that should properly recognise such serious physical and/or mental health issues and related financial crises;
2. The process that practitioners and their client taxpayers should follow in raising these matters with relevant ATO case officers to have that vulnerability recognised;
3. What those ATO staff should do in practice to recognise and respond to such issues – which will likely require training to support staff in recognising and dealing with those issues;
4. Specifying the range of types of independent medical and psychological evidence and/or related materials to have such vulnerability properly recognised by ATO case officers and their more senior leaders (perhaps including some standard questions/criteria); and
5. The range and types of adjustments (clarifying existing adjustments and considering further improvements) that the ATO should make to their decision-making on those touchpoints to respond to seriously physically and/or mentally ill taxpayers who provide such acceptable independent evidence from suitable qualified medical and/or psychological experts.
How can Tax Controversy Partners help you?
At Tax Controversy Partners, we understand how best to deal with the ATO on behalf of vulnerable clients, such as those with serious mental health conditions and/or serious physical health illnesses.
We can help such clients directly or assist them in concert with other legal, tax or accounting advisors, to help the client to gather appropriate evidence and then best communicate the client’s vulnerability to the right areas in the ATO
Our experienced lawyers can represent a vulnerable client’s best interests in supporting them to engage with the ATO in ways that are compliant with the current legal framework, ATO practices or procedures and based on our practical experience with ATO responses to previous vulnerable taxpayers’ circumstances.
To seek our help with vulnerable taxpayers dealing with the ATO, please contact us using our online contact form, via email at admin@taxcontroverypartners.com.au or by phone at 02 8513 3813.