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Help is at hand for victims of ‘sexually transmitted debt’
Australians left with company tax debts through financial abuse could gain relief under proposed reforms targeting perpetrators.
- The federal government is proposing laws to protect financial abuse victims left liable for company tax debts they did not knowingly incur.
- Director Penalty Notices can leave victims facing hundreds of thousands in debt, with just 21 days to respond before the ATO can pursue recovery.
- The proposed “innocent spousal relief” would be a world first for company tax debts, with consultation closing November 27 and legislation possible next year.
Just about the worst thing that can happen in your interactions with the Tax Office is a Director Penalty Notice, or DPN. Especially if you are a victim of economic abuse in the form of “sexually transmitted debt”.
The Founding Director of UNSW Tax and Business Advisory Clinic, Ann Kayis-Kumar, says eight in ten financially vulnerable women who turn up at her clinic have suffered economic abuse, many of them through the weaponisation of the Tax Office.
Nationwide, the Bureau of Statistics says one in six Australian women have experienced economic abuse at the hands of a partner at some stage, and one in 13 men.
Kayis-Kumar uses the term “sexually transmitted debt” to describe what happens when someone gets loaded up with debts without their knowledge and pursued for payment by the ATO.
When it arrives, a DPN can be shocking. It will state that the recipient is a director of a company, partnership, or trust, and that, as a director, they are liable for the total amount owing. The entire amount is due within 21 days, with interest compounding daily at more than 11% per annum.
Some debts are in the tens of thousands; others are in the hundreds of thousands. They are enough to send the recipients bankrupt. Often the recipient doesn’t have access to, or know about, the relevant documents.
Many clients who come to the clinic say they were signed up as directors without their knowledge, some as sole directors, and sometimes with forged signatures. Others say their partner didn’t tell them what signing up meant.
Until now, the ATO’s hands have been tied. It is required to issue DPNs when money is owed, even where the company has no money to pay the debts, and it is required to seek payment from whatever directors it can find.
In all but exceptional circumstances, it is unable to wipe the debt. When a company’s funds have been emptied, and the person who emptied them vanishes, what’s owed can include GST collected on behalf of the government and superannuation owed to employees’ funds.
The most the ATO has been able to do most of the time has been to postpone collection of the debt, meaning the debt is still the responsibility of the person who has been sent the DPN and is still listed as owing every time that person opens their MyGov account.
Responding with reforms
In a landmark response to a parliamentary inquiry last week, Assistant Treasurer Daniel Mulino issued a consultation paper outlining long-promised plans to take action against perpetrators of economic abuse and proposing something that would be a world first: innocent spousal relief for company directors.
The US has had innocent spouse relief since 1971. But it only lets authorities waive income tax debts, not company tax debts. Australia’s proposal would be a world-first.
Mulino wants responses by November 27, making legislation possible next year.
It’ll build on earlier announcements: preventing perpetrators of violence from receiving their victims’ superannuation death payouts, and empowering the ATO to prevent rollovers of super into newly established self‑managed super funds where it suspects abuse.
The government could do even more.
Australia’s Tax Ombudsman has suggested greater information sharing between the Tax Office and agencies such as Services Australia, which administers child support. The parliamentary inquiry went further and wanted responsibility for collecting child support returned to the Tax Office (which once had it) where it could be used to flag suspected abuse.
The inquiry also suggested holding lawyers, financial planners, and tax accountants who help set up company directorships to account. They could be ordered to report suspected abuse in the same way as doctors, teachers and childcare workers.
It also recommended that their professional bodies develop resources to help them identify and report suspected abuse. The government has accepted the recommendation in principle.