Australian Taxation Office
Management of Hardship
Presented by
Lou Pezzimenti, Service Delivery, Debt
Tony Lazaris, Service Delivery, Debt
Financial & Consumer Rights Council
October 2016
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Our Debt Collection Approach
Our decisions are based on a consideration of each client’s
individual circumstances, ensuring we;
• Assist those attempting to work with us and do the right thing,
and
• Are firm but fair with those who choose not to work with us,
continually default on agreed arrangements or don’t have the
capacity to pay and don’t take steps to resolve their situation
• Our debt position $.
Key outcomes:
• Optimising debt collections, and
• Ensuring fairness for all taxpayers and a level playing field for
business.
Australian Taxation Office approach to management of tax debt and hardship
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Debt collection stages
Ongoing engagement with taxpayers
Individual circumstances taken into account
Fair and consistent decisions
$
Early intervention
Enforcement
Telephone
External collection agencies
Letters
SMS
Point in time Garnishee
Enduring garnishees
Director Penalty notices
Legal action
Bankruptcy proceedings
Time / Escalating risk
Exit points
Payment
in full
Finalised payment
arrangement
Release
(hardship)
Australian Taxation Office approach to management of tax debt and hardship
Bankruptcy
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How can clients help themselves?
DO
deffectively with tax debts
• Know your responsibilities.
• Act early - better for your client and for us and increases chances
for getting back on track quickly
• Prepare - all relevant information / consider sustainable options
(allows us to identify the best option to help quickly)
• Lodge on time (even if your client can’t pay) – this will ensure
your client doesn’t incur failure to lodge penalties. It also ensures
that, if applying for release, your client’s current debt is position is
clear and the release application can be considered.
DON’T
• Avoid contact with the ATO
• Break promises to pay or default on arrangements
• Fail to provide information when requested
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Options for those experiencing hardship
• Specialised team to assist taxpayers experiencing serious
hardship or financial difficulty
• Utilise a range of options (often in combination) including:
o Payment arrangement
o Remission of interest and penalties
o Debts uneconomical to pursue
o Release from income tax debt
• Work closely with financial counsellors
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Our philosophy and focus
 Natural Conversations
 Cultural Traits
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Client focused.
United & Connected.
Future Oriented.
Passionate & Committed.
Empowered & Trusted.
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What is Hardship ?
 Someone would be considered in financial hardship if
deprived of what are considered necessities to normal
community standards.
 Hardship is not defined by law and must be determined on
a case by case basis
 Various indicators of financial hardship are considered
when assessing hardship applications.
Release application or Hardship Correspondence.
 Circumstances surrounding hardship can differ depending
on whether you're an individual or a business.
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Hardship Considerations - Individuals
 A person is considered to be in serious hardship when they
would be left unable to provide for themselves, their family
or other dependents in respect to the following:
 food
 accommodation
 clothing
 medical treatment
 education
 other basic necessities
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Indicators of financial hardship
Category
Income and
employment
Assets
Factors to consider
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Current employment details
Amount of income from employment
Other sources of income
Recent changes to income and/or employment
Details of any businesses
Provision for ongoing tax liabilities
Incarceration
Metropolitan or regional location
It is reasonable to expect some assets be sold to furnish a debt
(e.g. land, shares, a boat). Generally this would not include a
family home of modest value and little equity. However,
substantial equity in a home may indicate an ability to obtain
finance.
 Have assets been acquired in preference to addressing tax
debt
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Indicators of financial hardship
Category
Age
Factors to consider
Age may impact on issues such as:
 Likelihood of financial situation improving
 Future employment prospects
 Longer term capacity to pay a debt
Family situation
 Marriage or relationship breakdown can severely impact the
taxpayer’s financial circumstances
 Often they are unable to give their tax matters the necessary
consideration
 Many suffer health issues as a result, eg. depression
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Indicators of financial hardship
Category
Necessary
expenses
Factors to consider
Expenses can vary per individual circumstances. For example:
 Higher fuel costs in some regions
 Incurrence of carer expenses
 Varied costs of medications
Compliance
history
and current
level of
engagement
Attitude to the liability and preparedness to plan for future
obligations will be considered. If past compliance is poor, a
change in behaviour must be observed.
 Did the debt arise from an audit
 What contributed to the non-compliance
 Was this reasonable in their circumstances
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Indicators of financial hardship
Category
Factors to consider
Dependents
The amount the taxpayer can apply to payment of a debt is
impacted by the number of dependants they are responsible for
supporting. Dependants having medical considerations can also
affect their capacity.
Health
Health issues can be a major cause of debt and can affect
ongoing ability to pay the debt. Some factors to consider are:
 Ability to earn and maintain income
 Likelihood of financial situation improving, or
 Medical expenses
 Mental health
 Alcohol, gambling or drug addiction
Other debts
Capacity to pay other debts and/or priority given to payment of
those debts can impact on a serious financial hardship decision.
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Assistance Considered - Individuals
• Bring issues to our attention as soon as possible
• Be prepared to discuss specifics
To assist individuals we will consider:
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lodgment and payment deferral
tailored payment plans
GIC remission
FTL remission
non-pursuit
credit refund instead of offsetting – in limited cases.
Waiver – via DOF.
release from your tax debt – Release application.
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Release from payment – who is eligible?
Release from payment is only available to individuals or
trustees of deceased estates for:
• Income tax
• Fringe Benefit Tax (FBT)
• FBT instalment;
• Pay as you go (PAYG) instalment;
• Penalties and charges associated with the above liabilities
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Release from payment – how to apply
• Lodge all income tax returns and activity statements
• Complete an ‘Application for Release’ form via www.ato.gov.au
• Provide supporting documentation with application, e.g.
- savings account and credit card assessments
- medical certificates
- payslips
- Centrelink statements
• Unresolved disputes, or compensation, damages or insurance
claims need to be finalised prior to applying
• ATO applies two tests to establish serious hardship
- income and expenditure
- assets and liabilities
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Release from payment – how to apply
The case officer will consider other factors in determining if release
of the debt is in the community interest:
• Provision/capability to meet future obligations
• Reason for the debt – how it arose
• Previous compliance history
Alternate solutions will be considered to enable those not eligible for
release to meet their obligation or part of it.
• The taxpayer is notified of the outcome within 56 days
• Internal (ATO) objection and external appeals processes are
available (Administrative Appeals Tribunal (AAT) and Federal
Court)
• For more information, refer to PSLA 2011/17 Debt Relief
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Release from payment – Case Study
• Barbara (51 years old) has been unemployed for several years
due to a range of issues including serious illness.
• She is receiving Centrelink benefits.
• Her debt of $45k is from an undeclared capital gain in 2004 and
associated penalties.
• Barbara has no assets, she is living in rental accommodation and
relying on subsidies from her daughter and selling her furniture to
cover expenses.
• Her car was recently ‘written-off’ and she will have to pay
damages of $10k on the other vehicle.
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Release from payment – Case Study
Considerations and Outcome
 Barbara’s unemployment is long-term. It is unlikely that she
will return to the workforce
 Barbara is in receipt of Centrelink benefits. Evidence indicates
that people whose sole source of income is government
welfare have little or no disposable income, and therefore are
unable to sustain a payment arrangement. Barbara has no
disposable income and would not be able to pay this debt off
over a period of time.
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UNCLASSIFIED
Release from payment – Case Study
Considerations and Outcome
 Barbara has no assets to sell to be able to furnish the debt
and no capacity to borrow funds
 It is unlikely that Barbara will incur future tax liabilities
 Release granted. Payment of the debt would have caused
Barbara serious hardship and there is little or no prospect of
her financial situation improving significantly.
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Hardship Considerations - Business
 Serious hardship means financial difficulty associated with:
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business closure
disconnection of an essential service
repossession of a vehicle used for business purposes
imminent legal action pending for non-payment of debts
period of review limitations
court orders
settlements
other necessities for the business or people you are
responsible for
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UNCLASSIFIED
Assistance Considered - Business
To assist businesses we will consider:
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lodgment and payment deferral
tailored payment plans
GIC remission
FTL remission
non-pursuit
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Assistance Considered - OTHER
Individuals
 Tax help – ITR lodgment
 Bankruptcy
Business
 Business assistance visits https://www.ato.gov.au/Business/Register-for-personalised-business-assistance/
 Insolvency
General
 Financial advice
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Contacting the ATO about a debt
Call our account management information line on
• 13 11 42 between 8:00am and 6:00pm Monday to Friday
Payment arrangements (debts under $100k) via our 24 hour
automated self-help phone service
• Businesses – 13 72 26
• Individuals – 13 28 65
Call our financial hardship hotline – 1300 788 347
• For those with clients who have a tax issue or are suffering
serious financial hardship
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Self-help – information and tools
Consolidated payment information to help taxpayers understand
• their payment options
• the help we offer if they can’t pay their tax on time
Information about the support available for taxpayers
• experiencing serious hardship
• people affected by disasters
www.ato.gov.au/Individuals/Payments-to-ATO/
www.ato.gov.au/general/financial-hardship/
www.ato.gov.au/individuals/dealing-with-disasters/
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Self-help – information and tools
A range of online tools, including
• payment arrangement calculator
• business viability assessment tool
A range of tools and information via the ATO app, including
• payment plan estimator
• business performance check tool
www.ato.gov.au/calculators-and-tools/
www.ato.gov.au/General/Online-services/ATO-app/
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Any Questions
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