Victims of fraud and financial abuse caught in ATO's pursuit of $56b in tax debt

Australia Broadcast Center

2 days ago

Laura remembers the day she decided to leave an abusive relationship.
It was January 2020. She was on holiday with her former partner and recalls him getting physically violent in front of their children.
"He hit me that day," Laura (not her real name) recalls.
ABC News has had to conceal her identity to protect her safety.
"After confronting him, he pushed me into the wall and then grabbed me by my throat … in front of the kids," she says.
"He grabbed my phone, broke my phone … said he was going to kill me."
If you need help immediately call emergency services on triple-0
Laura says the physical abuse was the breaking point, but she had suffered years of abuse and control.
Her ex had a criminal record and was running a business under her name that had accumulated massive tax debts.
But because Laura was unable to control the business or the financial accounts, she did not know the full extent of the debts.
"Even though everything was in my name, I could not even transfer a dollar to myself," she says.
"When we got separated, I remember having no roof over my head.
"No bills were paid because he wouldn't pay any. He wouldn't allow me to buy groceries for me and the child.
"He'd break the doors to [the house]. He kept saying to me, 'You'll never do it on your own. You'll never survive without me.'"
When Laura did make the decision to leave and take over the business, her ordeal with the ATO began.
She took control of the business in late 2021 for about a year, not realising the extent of the debts owed, and not realising the debt would balloon and she would eventually become personally liable for half a million dollars in debt.
Laura is just one story among thousands of Australians experiencing financial hardship as the ATO chases almost $56 billion it says is owed by small businesses and individuals.
If you have more information about this story please contact Nassim Khadem at [e-mail] or [e-mail]
The Tax Ombudsman and financial counsellors working with people like Laura want the ATO to use its discretion to take a more compassionate and understanding approach.
And they want the federal government to change the law to give the ATO the ability to waive tax debts in these situations of financial abuse.
They warn that when victims of financial abuse become liable for tax obligations, it can tip people over the edge, both mentally and financially.
When the tax system is used to perpetrate financial abuse, the ATO has limited powers to clear a tax debt entirely or to transfer it to the perpetrator of the abuse.
New ATO figures provided exclusively to ABC News show more than 65 per cent, or $36.6 billion, of the $55.9 billion in outstanding total debt is owed by small business, and the ATO says much of that is undisputed debt.
But the issue is what happens in cases like Laura's, when the tax obligations were borne out of financial abuse.
To recover the money owed, the ATO has ramped up its debt recovery action, and this action is sometimes used against women, or in some cases men, whose debt is tied to their ex-partners.
The ATO's own data shows it is hitting people more often with a Director Penalty Notice that makes them personally liable for tax debts.
It is also returning to using garnishee notices after a drop-off during the pandemic. These notices give the agency the authority to take money directly from people's bank accounts.
It is also reporting alleged business debts to credit agencies, which then make it impossible for people to get access to credit.
38,409
Ann Kayis-Kumar, founding director of UNSW Tax and Business Advisory Clinic, deals with victim-survivors of financial abuse.
She says Director Penalty Notices (DPN's) can be an effective way of collecting tax debt, "but what we're concerned about is that … this is unwittingly capturing people, survivors of abuse, and there are not appropriate safeguards in place".
"We think that the reason for the DPN numbers being as high as they are is because they are in effect sexually transmitted tax debts," she says.
Australian Bureau of Statistics data shows that 1 in 6 women and 1 in 13 men have experienced economic abuse by an intimate partner.
"This is over 2.4 million Australians experiencing abuse. It's almost inevitable that a component of those … DPNs will be sweeping up this cohort of people," Ms Kayis-Kumar says.
"We have clients come to us in tears sharing that their abusive former partner has said, 'I'm going to financially ruin you'.
She says there needs to be a national investment in greater support for victims of abuse, "otherwise people will be playing a postcode lottery and falling through the cracks".
"It's quite shocking, for example, that there is only one statewide financial abuse specialist [within the ATO]," she says.
A question often asked of people who have faced financial abuse is why they did not make the decision to come forward sooner.
This question, according to experts who work with survivors of domestic and family violence, fails to understand the premise of coercive control.
"We need to see that culture change within the ATO," says Julie Dal Pra, a financial counsellor at EACH.
She says the ATO must stop treating victims of financial abuse as tax avoiders.
"These women are not trying to avoid tax or [be] scammers — it's simply not their tax obligations," she says.
Ms Dal Pra says they are seeing more cases of women being made a director by their ex-partner without consent, and then becoming liable for the company's tax debts.
"People's tax file numbers are being used fraudulently, and they are having earnings reported to the ATO that are not theirs," she says.
"And I don't think there's a foundational knowledge of what financial abuse is and what it looks like. So when women are telling their stories to the ATO, they're not being listened to or believed."
This is the ordeal Laura faced.
In 2017, before Laura's business debt had ballooned because of general interest charges, there was one phone call that Laura's ex-partner made her do with the ATO.
He wanted Laura to negotiate a payment arrangement with the ATO for the company's then-outstanding debt.
"He was there, and he was prompting me on what to say," Laura recalls.
This debt was growing by the day, accumulating general interest charges.
It wasn't until February 2022 that Laura next contacted the ATO and revealed what had really happened.
The ATO sent Laura a letter in September 2022, rejecting her request to have the tax debt waived, and arguing that in 2017, she should have explained what was going on.
It says the 2017 phone conversation "shows that you were involved in the business operations. Therefore, you would have known about the company financial difficulties since then".
It tells Laura, "a prudent director would have ensured that all reasonable steps to cause the company to either meet its obligation to pay, or have an administrator appointed, or begin to be wound up, be taken promptly".
"A reasonable step could have been seeking advice from the ATO and ASIC and inform the relevant authorities that you were coerced into becoming the director of the company at an earlier point in time ie back in 2017," the letter stated.
"In light of the above, the Commissioner is not satisfied that you are not liable for the Director Penalty liability under this defence."
Laura says she did not come forward earlier because she was frightened and trapped under her ex's control.
Laura breaks down several times while talking to the ABC, crying uncontrollably and struggling to speak.
"I thought the verbal put-downs — 'You're fat, you're dumb, you're stupid. I'm going to [kill you] dig you up, pour concrete over you and no one will find you' — I thought that was normal. I didn't know any better.
"He wouldn't let me see my family, and if I did, it was secret. It got worse when I had our child, he would keep tabs on me. He would call me 50 times a day … I was so scared."
She says it was only in hindsight that she understood what was happening was financial abuse.
"I wish that they [the ATO] would look at us as victims and see what we went through," she says.
"The person that is liable — they should be going after them … I'll never be able to buy a house for my child.
"I did everything they asked for and I still have to pay for such a large debt — that never came from my hands."
She says while the ATO gave her contact numbers for lawyers following the 2022 conversation, she could not afford to pay lawyers and instead contacted free support services.
She says the ATO has at no point informed her she could have stood down as director and relinquished the debt.
In April 2023, Laura received a Director Penalty Notice — saying she had 21 days to repay the total debt, which at that stage had hit about half a million dollars — or she would be held personally liable.
She says she then contacted a liquidator to start the process of winding up the business.
Since then, the liquidator has sold off the business but Laura remains personally liable for about $200,000.
Even when financial abuse survivors can afford lawyers, they must spend years fighting through the courts.
"It consumed me going to court, consumed me," says Rose (also not her real name to protect her safety).
"It affected my health. It affected the way I was a mother to my son."
Rose left her husband after years of abuse.
"During the marriage, there was alcohol abuse on his part, a lot of alcohol abuse, and with the alcohol came emotional and mental abuse," she recalled.
"It was nine years into the marriage that I made the decision that I couldn't do it anymore. It was in 2020, and it was after a very bad drunken weekend from him."
Rose says when she decided to leave him, he emptied their joint business bank account and then she had to spend years dealing with a tax debt he created.
"For the first couple of months, he spent outrageously and then it was probably 2–3 months into separation that he just emptied them [the business accounts]," she said.
"That money was supposed to be for [paying] our BAS [Business Activity Statements], superannuation, things like that, and he just completely drained them.
"We're talking about $70,000, and then he was stopping future earnings going into the account."
She said her ex-husband felt like he was losing control, and this was his way to control her.
"I contacted my solicitor. There was one night, where $10,000 disappeared in one go and he [the solicitor] said OK, we need to take [legal] action."
She said because she was a co-director of the business, the ATO came after her.
Rose says in 2021, the ATO called her saying the business owed its staff superannuation that needed to be paid immediately.
"These phone calls [from the ATO] went on for days and weeks, almost daily."
"I said to them, you know, he [her ex] is also director. Are you contacting him? And they said to me that 'the men never pay, and the women do, so we always go after the women'.
Rose says she paid staff superannuation out of her limited wages. But as time went on, more interest on the primary debt was charged and it ended up hitting about $200,000.
She says during that time, she and her ex were in and out of court regularly and she was forced to get intervention orders — "there was bad behaviour from my ex … And in the end, the judge ordered that the business be sold."
When the business was sold, the creditors, including the ATO, were paid.
Rose says that when it comes to victims of financial abuse, the ATO must "be more compassionate" and "investigate further into situations like that rather than just chase" victims.
"They were threatening me with jail, and I was just a tiny, tiny little person. I felt like I was maybe an easy target for them," she says.
The ATO is currently undergoing consultation on a new ATO Vulnerability Framework, which it says seeks to "carefully differentiate those taxpayers who may be experiencing vulnerability" and look at ways the agency can offer them "tailored support".
It says this framework "may include victims of financial abuse" but does not confirm that will be the case.
Tax Ombudsman Ruth Owen recently undertook a review into financial abuse within the tax system.
"Personally, I found it really shocking — the amount of coercive control and economic abuse within the Australian community," Ms Owen says.
"It's really the responsibility of parliament to consider whether legislation needs to change in these instances.
She says while legislative changes could give people an opportunity to clear the debt, the other problem that can be addressed more immediately is for the ATO to have more specialised staff who can recognise the warning signs of abuse.
"The ATO has a responsibility to recognise there are people out there who have tax debts for which they are not responsible," the Tax Ombudsman says.
She calls on the ATO to set up specialist teams to recognise these particular types of cases.
"It's very, very difficult to identify cases of financial abuse victims, survivors of financial abuse quite often won't report," she says.
Ms Kayis Kumar says in the United States, the Internal Revenue Service (IRS) has legal provisions that recognise victims of domestic violence are deserving of special protection.
She says the US has had some form of "innocent spouse relief" in place since 1971, providing relief for spouses who are jointly liable for tax debts.
And she says following legislative reform of the US provisions in 1998, the IRS has, in recent years, been recognising that survivors of economic abuse may deserve relief from tax debts.
She says while this provision may not be directly translatable given differences between the Australian and the US filing systems, there is much to learn from the US system for the Australian context.
While legal changes are being contemplated, Laura wants to see immediate action.
She wants the ATO to employ staff who are specialised in domestic and family violence and take a more understanding approach.
"It's not easy coming out. It's not easy telling someone that you were abused in many different ways," she says in tears.
Laura says the ATO is now investigating her case and reviewing information from the liquidator that she was not involved with running the business when the debt was incurred.
"I don't have the means, the funds, to pay that debt," she says.
"I'm hoping they acknowledge what has happened and that the debt is removed from my name."