Better small business access to compensation for ‘defective’ administration of tax matters

Part of a range of measures announced in the 2018-19 Mid-year Economic and Fiscal Outlook was a “small business package” that was designed to make it easier for small businesses to operate. A part of this package was an undertaking by the government to review the ATO’s Compensation for Detriment caused by Defective Administration (CDDA) scheme.

The CDDA scheme provides a discretionary mechanism to award compensation if an individual or a small business has suffered detriment because of a government agency’s defective administration.

The review has now been completed, and it concluded that the scheme does indeed need some work. In all, a dozen recommendations were made, all of which the government has accepted in full, in part or in principle. The Minister for Finance Mathias Cormann says the government will work to implement them from 30 November 2019.

The key actions it has committed to include:

  • The government will ensure fair handling of CDDA claims by ensuring claims are investigated and decided by officers who are not from a part of the ATO that was involved in the tax matters which may have led to the claim. The most sensitive or complex matters can now be referred to independent reviewers outside the ATO.
  • For more serious cases, the investigation of a claim will be separated from the decision-making. These cases will also be escalated to senior levels for decision, with the Tax Commissioner himself deciding the outcomes where an independent reviewer is involved.
  • For the most serious matters, there will be an opportunity for a complainant to comment on an investigator’s preliminary views before a final decision is made and an opportunity to request a review of a decision.
  • Plausibility will be adopted as the standard of proof in CDDA tax matters, to establish whether defective administration has occurred (instead of a balance of probabilities).
  • ATO procedures will require its staff to take into account a small business’s financial and personal capacity to respond to a review, audit or other compliance process.
  • The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) will establish a new assistance function to help small businesses understand how they can pursue CDDA claims. The ATO will also work to increase awareness of the scheme.
  • The ATO will review and update its guidance material to ensure that making a claim is as simple as possible and decisions are explained in succinct everyday language.
  • The government will strengthen oversight of CDDA matters and accountability by ensuring the Assistant Treasurer is well briefed on the operation of the scheme. Delegations to the ATO will reflect how the Assistant Treasurer wants the ATO to administer the scheme on the Minister’s behalf.

With regard to the ASBFEO’s view, the Ombudsman Kate Carnell says: “Our research into unfair treatment by the ATO found serious system-wide issues impacting small businesses. We are particularly pleased investigation of the most sensitive or complex CDDA claims and decisions on them will be independent of the ATO,” she says. “We also applaud the announcement that ATO procedures take into account a small business’ financial and personal capacity to respond to a review, audit or other compliance process.”

For more detailed overview of the recommendations, and the government’s intentions, see this Department of Finance paper.

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