In the wake of the recent unplanned system outages, the ATO’s response was to provide lodgement deferrals and remit interest and penalties where the outages affected either practitioner and/or client lodgment outcomes. ATO announces its approach to outage compensation
But in the face of approaches from a portion of the tax practitioner community for compensation for losses caused by these outages, the ATO has obviously felt compelled to make some sort of statement on what is possible in this regard.
To this end, it has drawn attention to an arrangement that is already in existence (although many may not have heard of it before). Called the “Commonwealth Scheme for Compensation for Detriment caused by Defective Administration” (CDDA), this is a discretionary scheme operated by the Department of Finance (find out more here).
As the CDDA website says: “Where it has been determined that a person has no legal right to compensation, the CDDA scheme provides a possible avenue for compensation where a person has suffered detriment due to the defective actions or inaction of the Commonwealth Government.”
The ATO statement to practitioners says use of the CDDA scheme will allow it to “consider claims and pay compensation if you or your clients have suffered disadvantage or loss because of defective administration”.
It says it will consider claims in accordance with guidelines issued by the Department of Finance, and that practitioners who submit an application for compensation must ensure they address the criteria set out in the guidance material, establishing:
- there was direct financial loss
- the loss was caused by the ATO’s defective administration
- that reasonable steps have been taken to mitigate that damage.
The CDDA scheme guidelines are set out in Resource Management Guide 409 (PDF 168KB).
The ATO states that the CDDA scheme should ideally be viewed as a “remedy of last resort”, and that where it can limit disadvantage by other means, such as deferrals of time to lodge and not applying penalties or interest, that it will explore these prior to an offer of compensation under the scheme.
The ATO states that the types of compensation it can consider are financial losses with a direct connection to our actions that lead to a finding of legal liability or defective administration. These can be losses such as:
- professional fees, where evidence of payment is provided and the fees are considered by the decision maker to be reasonable (our assessment of what is reasonable may differ from yours)
- interest for delays in providing funds in cases where no statutory interest can be paid
- bank or other administrative fees you incurred because of our actions.
Losses not covered
It also says that generally, claims for the following types of losses can’t be considered under claims of legal liability or the CDDA Scheme:
- claims for personal time spent resolving an issue
- claims for stress, anxiety, inconvenience
- claims for delay in receiving funds from the ATO where statutory interest was paid
- claims for costs associated with complying with the tax system including costs associated with audits, objections and appeals – even where it is found you complied with your obligations
- costs of putting in a claim or conducting a claim for compensation
- claims for taxation or other Commonwealth liabilities with substantive review rights that can be or could have been pursued.
Acts of grace
Occasionally, people are financially disadvantaged unintentionally through legislative changes or other activities of government, and there is provision for compensation for these people through what is quaintly known as an “act of grace”. The act of grace power lies in the hands of the Minister for Financial Services, and it is this official who has the discretion over applications for compensation under this provision.
The Department of Finance administers act of grace payment requests, and the ATO confers with this department regarding such tax-related claims. The Department of Finance can be contacted via its website for all act of grace requests.
ATO announces its approach to outage compensation ATO announces its approach to outage compensation ATO announces its approach to outage compensation ATO announces its approach to outage compensation