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Two federal ombudsmen have joined forces to launch a scathing review of the tax office and call on government agencies to act more fairly when they chase people for debts.
The Australian Taxation Office (ATO) is owed tens of billions of dollars' worth of income tax debts it once dismissed as being "uneconomical to pursue".
It is owed more than $15 billion from 1.8 million entities, largely consisting of individuals, but has said the figure could be higher once interest is applied to those debts.
It has come as a shock to many taxpayers to have their debts resurrected, in some cases after more than a decade.
These debts had effectively been written off. They disappeared and then reappeared many years later, along with hefty interest charges.
In a report released on Tuesday, the Commonwealth Ombudsman and Taxation Ombudsman singled out the ATO's approach to re-activating very old debts, as well as the way it treated people in financial hardship.
"While the law may require agencies to take certain action, agencies are responsible for determining how they take that action in a way that minimises distress to affected and impacted people," the joint report said.
Tax Ombudsman Karen Payne said there had been an uptick in complaints to her office about the ATO, including about historical debts and debts that had been overstated.
She said while the law stated that the ATO must collect tax debts, it did not tell it how to do it and what the best practice for collecting those debts was.
She said her office had also received complaints related to $34 billion worth of small business debt that was put on hold during the pandemic but the ATO was now chasing from small businesses and the self-employed.
"It's always worrying and distressing to be told that you owe the Commonwealth debts," Ms Payne said.
"And obviously in these economic times, people are worried about the continuity of their business.
So, yes, it can be a factor that tips people over the edge."
"You can't have a one-size-fits-all [approach]. You can't have a tick-the-box approach. You need to actually recognise individual circumstances and particularly when people are experiencing financial trauma and stress."
Ombudsman urges ATO to learn from past failures
Commonwealth Ombudsman Iain Anderson said in 2009 his agency made specific detailed recommendations on how the ATO should improve its communication with taxpayers about decisions to write off or re-activate old debts but that this advice was not heeded.
The ATO's practice of not offsetting very small tax debts was found to be incorrect following an Australian National Audit Office audit in 2023.
Mr Anderson noted the ATO sent about 200,000 letters advising people they owed tax debts ranging from a few cents to thousands of dollars.
At the time, ATO systems did not display taxpayer debts that had been '"written off'' for being deemed uneconomical to pursue.
"People reported the letters did not explain how or when debts were incurred, causing concern and confusion about their validity," Mr Anderson said in the report.
He said the age of some debts made it difficult to verify or challenge them because people no longer held the relevant records.
In response to community concerns, the ATO stopped sending the debt letters and undertook to review its approach to communicating with people.
"It is disappointing this occurred," Mr Anderson said.
"Such issues may have been mitigated if the ATO had regard to the lessons previously learnt — including recommendations in the 2009 report, feedback from tax professionals and recommendations in a number of IGTO (Inspector-General of Taxation and Taxation Ombudsman) reports about undisputed tax debts and taxpayer rights to complain, review and appeal."
He said agencies such as the ATO should have regard for current and past observations and the recommendations of oversight bodies.
"Don't just re-commit past failings," Mr Anderson said. "The community is entitled to expect agencies have a corporate memory."
The ATO has previously indicated to ABC News its willingness to waive interest charges on certain historical debts, but says it will only "consider these requests on a case-by-case basis".
An ATO spokeswoman said the tax office understood that "in making these debts invisible to clients once they were placed on hold, it does come as a surprise to many [to receive a debt notice]". She said: "It was never our intention to cause frustration or concern."
After the ABC published an article about one taxpayer, Adriana Carrington, being pursued for a debt almost 15 years old, the ATO apologised to her and agreed to waive the interest charges. It is now up to the federal government whether it waives all the old debts entirely.
Mr Anderson said the observations in the joint report did not just apply to the ATO, and were instead a lesson for all agencies involved in debt collection.
For example, the report also noted that late last year the media reported an error in the Department of Veterans' Affairs (DVA) systems resulted in debt notices being sent to some veterans over the age of 90.
The DVA apologised for the error, explaining that while it had a longstanding business rule that excluded veterans over the age of 90, the debt notices were sent after transitioning to a new computer system.
"It does come down to this failing to really think about the impact … on people, failure to put people at the centre of how you do public administration," Mr Anderson said.
ATO urged to show greater care to people in financial hardship
But the majority of the report is focused on what it regards as the tax office's failings. It notes that the ATO sometimes ignores the dire circumstances of people in financial hardship.
It refers to a recent investigation by the Tax Ombudsman in which the complainant asked the tax commissioner to exercise his discretion to refund the complainant's 2023 tax refund instead of offsetting it against his tax debt.
"The complainant was in urgent need of his refund to prevent an immediate risk of homelessness, which he had provided evidence of," Ms Payne noted in the report.
The ATO denied the request, saying the complainant had already entered into a payment arrangement after his 2023 income tax credit had been posted to his account.
Ms Payne notes in the report that during the investigation, the ATO provided her office with advice that was contrary to its original decision and "confirmed on two occasions that the complainant's circumstances fell under serious financial hardship".
"The deciding officers denied the request by placing great weight on one compliance issue and the resulting advantage compared to compliant taxpayers, but only gave a brief reference to the demonstrated hardship claim that masked the serious and immediate risk of homelessness that would ultimately result," Ms Payne said.
Following urgent discussions between the Tax Ombudsman and senior ATO officers, the tax office reversed its decision. The complainant has since been provided with his refund.