Case Study – Remission of General Interest Charge

The complainant applied to the ATO for a full remission of General Interest Charge (GIC) on all tax debts due to their extenuating personal circumstances. The complainant had three separate tax debts on which GIC had accrued for a period of over 12 years and two of these debts had been subject to a court-imposed judgment during this time.

The ATO approved the complainant’s remission request and proceeded to remit all GIC on their ATO account. However, the complainant was concerned that the amount remitted did not reflect a full remission of GIC on all their tax debts. The complainant remained unsatisfied with the ATO’s responses to clarify the amount, and raised their concerns with the IGTO.

As a result, the IGTO commenced an investigation to determine whether all GIC on the complainant’s ATO account had been remitted. Following the IGTO’s examination and reconciliation of over 200 account postings on the complainant’s ATO account, the IGTO observed that, due to an oversight on the ATO’s behalf, GIC had not been remitted for one of the complainant’s tax debts and only a partial GIC remission had been applied to the two debts that were subject to a court judgment.

Consequently, the IGTO identified a significant amount of GIC remaining on the complainant’s account, which was then remitted by the ATO as a result of the IGTO’s investigation.

Case Study – Disclosure of Business Tax Debts

A representative raised concerns with our office that their client was in the process of selling his business and intends to use the funds from the sale of the business to pay his outstanding tax debts. The representative explained that their client had been negotiating for 22 months with the ATO and had offered his residential property and his business as security until  the business sale process completed and he repaid the debt. However, the ATO had not accepted their client’s proposed assets as security for his outstanding tax debts and was looking to refer their client’s business tax debts to the credit reporting bureaus.

The original outcome that the representative had sought was for their client’s case to be reassigned to a new ATO case officer in the interest of ongoing procedural fairness. We explained to the representative that it is unlikely the ATO would agree to reallocate their client’s case to a new ATO case officer if no specific reason for the request can be identified. Instead, the representative and our office agreed that the new outcome we would investigate was to better understand the reasons why the ATO declined to accept their client’s proposed assets as security and the options that may be available to refrain the ATO from referring their client’s business tax debts to the credit reporting bureaus.

During discussions with the ATO, we acknowledged the events that had led the ATO to the disclosure of the business tax debt warning letter. However, we explained to the ATO that the client’s proposed assets as security sufficiently covers the outstanding tax debt and it would be reasonable for the ATO to defer referral of the debt to credit reporting bureaus whilst the client was in the midst of selling their business. The ATO provided the IGTO with its reasons for declining the security offer. We discussed with the ATO the remaining reasons why the ATO did not accept the client’s proposal and identified reasons, including certain missing information, supporting documents that the ATO required and its concerns about the progress in the realisation of assets.

We shared our investigation findings with the representative and encouraged the representative to continue discussions with the ATO. The representative confirmed that they have since provided the ATO with the supporting documents the ATO required to evidence the progress of the sale of the business. As a result, the ATO has agreed to place a hold on referring their client’s business tax debt to credit reporting bureaus and granted a deferral of recovery action whilst further information was to be provided by the representative.

Case Study – Offsetting of Centrelink Family Assistance against Tax Debts

The complainant, who is a single mother of two children and legal guardian of her aging father, was concerned with the ATO offsetting her Centrelink Family Assistance (CFA) payment of approximately $8,000 towards a debt of $23,000. She did not receive the $8,000 CFA payment, but instead had a debt of approximately $15,000 remaining after the offset. She was relying on the $8,000 Centrelink payment to support her family, as she was unemployed at the time due to undertaking full time care responsibilities for her children and her father. Through the IGTO complaint process, the ATO agreed to refund the $8,000 offset from Centrelink, by recognising that it was not appropriate to pursue debt collection given her circumstances at the time.

Case Study – Garnishee Notice

The ATO issued a garnishee notice to a taxpayer for debts from a former partnership business. The taxpayer was travelling at the time and the garnishee notice resulted in them losing access to funds whilst in a foreign country. Our investigation revealed that in 2016 the ATO had advised the taxpayer that they would not be pursued for debts from the former business. Although, this advice was not correct at law, it was nonetheless provided and the taxpayer relied upon it. To resolve the complaint the ATO honoured its earlier advice to the taxpayer and returned the garnished funds. The ATO apologised and also took steps to ensure that no future debt collection actions would be taken against the taxpayer.

Case Study – Early release of superannuation on compassionate grounds

A complainant that had recently been diagnosed with stage four prostate cancer, was advised (by their doctor) to have surgery as soon as possible to remove the cancer. Understandably, the surgery was time critical.  The complainant needed to borrow money from a family friend to make the upfront payment for the surgery as well as other medical expenses. The complainant intended to repay their family friend by applying for an early release of their superannuation on compassionate grounds.  Applications for compassionate release of superannuation are set out in regulation 6.19A of the Superannuation Industry (Supervision) Regulations 1994 and are currently administered by the ATO but have previously been administered by the Department of Human Services (DHS) and the Australian Prudential Regulation Authority (APRA).  

As per section 4 of the Superannuation Industry (Supervision) Act 1993 – the Commissioner of Taxation is generally responsible for self-managed superannuation funds, data and payment standards, tax file numbers and the compassionate release of superannuation amounts. 

Importantly, there has not been any legislative changes to the eligibility for early release of superannuation on compassionate grounds across the different periods of administration – that is, by the ATO and DHS, and APRA. 

Following the ATO’s consideration of the complainant’s application, the ATO informed the complainant that their application had been rejected on the basis that the surgery and medical expenses had already been paid. The ATO’s policy was to only approve compassionate release of superannuation for unpaid expenses. Therefore, if the expense had already been paid, for example by using a loan, a credit card or money borrowed from family or friends, then the applicant would not meet the eligibility requirements for compassionate release of superannuation. The complainant sought an internal review of the ATO’s decision which affirmed the ATO’s original decision. 

The complainant subsequently lodged a dispute with the IGTO. The IGTO’s investigation initially focused on the legislative basis that the medical expenses for early release of superannuation on compassionate grounds had to be unpaid. The IGTO also referred the ATO to a 2014 version of the DHS’s website which suggested that applications for compassionate release of superannuation to repay a loan, where an applicant borrowed money to pay for their medical expenses, may have been approved. Accordingly, the IGTO recommended that the ATO reconsider the complainant’s original application based on the specific circumstances. The ATO responded that further reconsideration of the complainant’s original application would not lead to a different outcome. 

The IGTO further examined the relevant legislative provisions and identified that it included a specific paragraph which provided the ATO with legislative residual discretion to approve release on grounds that are consistent with the compassionate grounds of release in the legislation. The IGTO formed the view that this legislative residual discretion could be applied to the complainant’s circumstance.  

The IGTO also further investigated the circumstances described on the 2014 version of the DHS website. This led the IGTO to locate a publicly available version of APRA’s guidelines from 2001.  The APRA guidelines stated that when an applicant had incurred debts by borrowing money to pay for expenses that were ordinarily grounds for compassionate release and have difficulties repaying the loan, then a release for the relevant expense can be approved under the legislative residual discretion. Furthermore, the guidelines set out what evidence was required from applicants at the time to approve their applications for early release of superannuation. 

The IGTO escalated its investigation to Senior ATO Executives and provided to them the evidence of how previous administrators would consider and approve applications for early release of superannuation on compassionate grounds to repay a loan that was paid for expenses such as medical expenses that were ordinarily grounds for compassionate release. The IGTO also communicated its view to the ATO that if the ATO were to adopt this approach, then further information would be required from the complainant to determine if they were eligible on this basis. 

The ATO established that the DHS approach in 2014 would not have resulted in a release of superannuation to the applicant, and that this outcome was also implicit in the guidance materials provided when administration passed to the ATO in 2018.   

Following the ATO’s further review of the relevant legislation and the policy intent, however, the ATO informed the IGTO that it had determined that a release of superannuation can be granted in certain limited circumstances where: 

  1. a loan was taken out by an applicant to pay for medical treatment for themselves or their dependant,   
  2. the applicant would have been eligible for release under the primary compassionate ground if the expense had not been paid, and 
  3. all or part of that loan remains unpaid, and the applicant is assessed as being unable to repay such a loan. 

As a result of the ATO’s change in policy, it was agreed for the ATO to directly contact the complainant and request the relevant evidence required to determine whether the complainant was eligible for compassionate release on this basis. 

Once the ATO contacted and obtained the relevant evidence from the complainant, the ATO made the decision to approve the complainant’s request for early release of superannuation on compassionate grounds to repay the loan that was obtained from a family friend to pay for the complainant’s surgery and medical expenses.  

As a result of the IGTO’s investigation, the ATO has also agreed to review all of its internal guidance material and publicly available information to determine what changes are necessary to reflect this update to the ATO policy. 

Case Study – Early release of superannuation on compassionate grounds

A complainant that had recently been diagnosed with stage four prostate cancer, was advised (by their doctor) to have surgery as soon as possible to remove the cancer. Understandably, the surgery was time critical.  The complainant needed to borrow money from a family friend to make the upfront payment for the surgery as well as other medical expenses. The complainant intended to repay their family friend by applying for an early release of their superannuation on compassionate grounds.  Applications for compassionate release of superannuation are set out in regulation 6.19A of the Superannuation Industry (Supervision) Regulations 1994 and are currently administered by the ATO but have previously been administered by the Department of Human Services (DHS) and the Australian Prudential Regulation Authority (APRA). 

As per section 4 of the Superannuation Industry (Supervision) Act 1993 – the Commissioner of Taxation is generally responsible for self-managed superannuation funds, data and payment standards, tax file numbers and the compassionate release of superannuation amounts.

Importantly, there has not been any legislative changes to the eligibility for early release of superannuation on compassionate grounds across the different periods of administration – that is, by the ATO and DHS, and APRA.

Following the ATO’s consideration of the complainant’s application, the ATO informed the complainant that their application had been rejected on the basis that the surgery and medical expenses had already been paid. The ATO’s policy was to only approve compassionate release of superannuation for unpaid expenses. Therefore, if the expense had already been paid, for example by using a loan, a credit card or money borrowed from family or friends, then the applicant would not meet the eligibility requirements for compassionate release of superannuation. The complainant sought an internal review of the ATO’s decision which affirmed the ATO’s original decision.

The complainant subsequently lodged a dispute with the IGTO. The IGTO’s investigation initially focused on the legislative basis that the medical expenses for early release of superannuation on compassionate grounds had to be unpaid. The IGTO also referred the ATO to a 2014 version of the DHS’s website which suggested that applications for compassionate release of superannuation to repay a loan, where an applicant borrowed money to pay for their medical expenses, may have been approved. Accordingly, the IGTO recommended that the ATO reconsider the complainant’s original application based on the specific circumstances. The ATO responded that further reconsideration of the complainant’s original application would not lead to a different outcome.

The IGTO further examined the relevant legislative provisions and identified that it included a specific paragraph which provided the ATO with legislative residual discretion to approve release on grounds that are consistent with the compassionate grounds of release in the legislation. The IGTO formed the view that this legislative residual discretion could be applied to the complainant’s circumstance. 

The IGTO also further investigated the circumstances described on the 2014 version of the DHS website. This led the IGTO to locate a publicly available version of APRA’s guidelines from 2001. The APRA guidelines stated that when an applicant had incurred debts by borrowing money to pay for expenses that were ordinarily grounds for compassionate release and have difficulties repaying the loan, then a release for the relevant expense can be approved under the legislative residual discretion. Furthermore, the guidelines set out what evidence was required from applicants at the time to approve their applications for early release of superannuation.

The IGTO escalated its investigation to Senior ATO Executives and provided to them the evidence of how previous administrators would consider and approve applications for early release of superannuation on compassionate grounds to repay a loan that was paid for expenses such as medical expenses that were ordinarily grounds for compassionate release. The IGTO also communicated its view to the ATO that if the ATO were to adopt this approach, then further information would be required from the complainant to determine if they were eligible on this basis.

The ATO established that the DHS approach in 2014 would not have resulted in a release of superannuation to the applicant, and that this outcome was also implicit in the guidance materials provided when administration passed to the ATO in 2018.

Following the ATO’s further review of the relevant legislation and the policy intent, however, the ATO informed the IGTO that it had determined that a release of superannuation can be granted in certain limited circumstances where:

  1. a loan was taken out by an applicant to pay for medical treatment for themselves or their dependant
  2. the applicant would have been eligible for release under the primary compassionate ground if the expense had not been paid,
  3. all or part of that loan remains unpaid, and the applicant is assessed as being unable to repay such a loan.

As a result of the ATO’s change in policy, it was agreed for the ATO to directly contact the complainant and request the relevant evidence required to determine whether the complainant was eligible for compassionate release on this basis.

Once the ATO contacted and obtained the relevant evidence from the complainant, the ATO made the decision to approve the complainant’s request for early release of superannuation on compassionate grounds to repay the loan that was obtained from a family friend to pay for the complainant’s surgery and medical expenses.

As a result of the IGTO’s investigation, the ATO has also agreed to review all of its internal guidance material and publicly available information to determine what changes are necessary to reflect this update to the ATO policy.

    Case Study – Excise

    A business sought to acquire excise-paid spirit in containers of more than 2 litres (i.e. bulk containers) to repackage them into smaller containers for retail sale. The ATO advised the business that they could only acquire excise-paid spirit in containers of 2 litres or less for repackaging. Alternatively, the business may acquire excise-unpaid (‘underbond’) spirit in bulk containers for repackaging if they had an excise storage licence. The ATO officer suggested, however, that the licence would unlikely be granted as it would cause an unnecessary delay to the payment of excise.  

    The business sought assistance from the IGTO as they were concerned that the ATO’s advice to them was incorrect. If the ATO’s advice was correct, the business was concerned that similar businesses only had two options:  

    1. acquire excise-paid spirit in many small containers of 2 litres or less – this would create inefficiencies and produce large and unnecessary amounts of waste; or  
    2. acquire spirit underbond, provided that an excise storage licence is granted by the ATO – this would impose disproportionate regulatory burden on small businesses.  

    As a result of the IGTO’s investigation:  

    • the IGTO provided independent assurance to the business that the ATO’s advice (other than the granting of storage licence) was in line with section 58 of the Excise Act 1901;  
    • the ATO issued a written apology to the business because the previous ATO advice about not granting a storage licence to the business was not appropriate and did not consider the business’s operations; and  
    • the ATO made available an officer from the ATO Excise Centre to assist the business with applying for a storage licence. 

    Case Study – Excise

    A business sought to acquire excise-paid spirit in containers of more than 2 litres (i.e. bulk containers) to repackage them into smaller containers for retail sale. The ATO advised the business that they could only acquire excise-paid spirit in containers of 2 litres or less for repackaging. Alternatively, the business may acquire excise-unpaid (‘underbond’) spirit in bulk containers for repackaging if they had an excise storage licence. The ATO officer suggested, however, that the licence would unlikely be granted as it would cause an unnecessary delay to the payment of excise. 

    The business sought assistance from the IGTO as they were concerned that the ATO’s advice to them was incorrect. If the ATO’s advice was correct, the business was concerned that similar businesses only had two options: 

    1. acquire excise-paid spirit in many small containers of 2 litres or less – this would create inefficiencies and produce large and unnecessary amounts of waste; or 
    2. acquire spirit underbond, provided that an excise storage licence is granted by the ATO – this would impose disproportionate regulatory burden on small businesses.

    As a result of the IGTO’s investigation:

    • the IGTO provided independent assurance to the business that the ATO’s advice (other than the granting of storage licence) was in line with section 58 of the Excise Act 1901;
    • the ATO issued a written apology to the business because the previous ATO advice about not granting a storage licence to the business was not appropriate and did not consider the business’s operations; and 
    • the ATO made available an officer from the ATO Excise Centre to assist the business with applying for a storage licence.

    Case Study – Missing refund

    The complainant was under a temporary guardianship arrangement whereby their financial affairs were managed by a trustee appointed to be their guardian. The trustee lodged several income tax returns for the complainant and nominated for any refunds to be deposited into the trustee’s bank account. After the ATO processed the tax returns, it refunded approximately $15,000 to the nominated account. Following the expiry of the guardianship arrangement, the trustee ceased to act as the complainant’s guardian and returned the monies to the ATO via electronic funds transfer (EFT). Unfortunately, the ATO was unable to locate the returned monies because the ATO’s system never identified it as belonging to the complainant’s account. This was due to an unfortunate coincidence whereby the 15-digit reference number in the trustee’s bank transfer matched details relating to a third party taxpayer (unrelated to either the complainant or the trustee) on the ATO’s system.

    The complainant approached the ATO to request their refund and lodged a complaint in May 2022. The ATO’s complaints area advised the complainant it had correctly issued the refund to the bank account nominated on the tax return, that it could not assist further and that this was now a matter between the complainant and their former guardian. The ATO did not request the complainant to provide any additional information to assist it with locating the refund, including records of the trustee’s EFT payment which evidenced that the monies had been returned to the ATO. 

    The IGTO commenced a dispute investigation with the ATO and supplied the trustee’s EFT records to the ATO which proved to be instrumental in enabling the ATO to locate the missing monies. Within three weeks of the IGTO commencing an investigation, the ATO located and refunded the monies directly to the complainant’s bank account and the matter was resolved.

    Case Study – JobKeeper

    The complainant is an 81-year-old taxpayer who operated a travel agency with his wife. The complainant had not enrolled for JobKeeper until July 2020 as he had initially been unaware that JobKeeper payments were available to support businesses without employees. 

    But for his late enrolment, the complainant had satisfied all other eligibility criteria for JobKeeper.

    When he approached the ATO for an extension of time to enrol (and to backdate relevant JobKeeper payments), the ATO refused on the basis that the business had not been affected by ‘exceptional circumstances’ to warrant the grant of extension of time. As a result, the ATO would only commence making JobKeeper payments to the complainant from July 2020 onwards. 

    Following our investigation, the IGTO found that the ATO had applied a narrow test when deciding whether or not to grant an extension of time. The IGTO observed that the relevant test, as set out in the ATO’s practice statement PSLA 2011/15 (the PSLA), was whether it would be ‘fair and reasonable’ to grant an extension of time having regard to the factors listed in paragraphs 45 and 46 of the PSLA and not the subset of ‘exceptional circumstances’ listed in paragraphs 47 and 48 of the PSLA.

    As a result of the IGTO investigation, the ATO reconsidered the complainant’s case and reversed its initial decision and allowed the backdating of JobKeeper payments to the complainant. The IGTO noticed a pattern in similar complaint cases managed by our office and published a report setting out our findings in detail. The full IGTO report containing the ATO’s formal response is available on our website.