Opinions

IPA

Compensation for ATO maladministration

Practitioners may be unaware government agencies can be held accountable for compensation for maladministration. The scheme responsible for administering this process is referred to as the Scheme for Compensation for Detriment caused by Defective Administration (CDDA). Prior to the federal election, the government called for a review of the CDDA scheme specifically to consider the operation of it by the ATO in relation to small business.

The CDDA scheme allows commonwealth government agencies to pay discretionary compensation when a person or organisation has suffered detriment as a result of defective administration, but when there is no legal requirement to make a payment.

The Institute of Public Accountants’ submission to the review focused on the inadequacy of the current CDDA scheme for our members, who are largely tax practitioners and who themselves operate small businesses in their own right. In our view, the current scheme is not fit for purpose and falls short of the expectations of the tax practitioner community, particularly in situations where the monopolistic nature of ATO technology fails to deliver.

We therefore recommend that the government consider and implement a fairer and more accessible scheme where tax practitioners are entitled to compensation where there are reasonable grounds for it for both economic and non-economic losses.

Tony Greco

The scheme does not compensate tax practitioners for opportunity costs or reputational damage caused by systems being unavailable or deployment of new systems where there are major operational flaws. Under the scheme, these types of losses are not specifically covered, which, among other things, leads to few claims being lodged by practitioners. Specifically, the inadequacy of the scheme falls upon the ATO’s narrow interpretation as to what constitutes ‘defective administration’, which allows, what we consider, legitimate claims from tax practitioners to be rejected.

We therefore recommend that the government consider and implement a fairer and more accessible scheme where tax practitioners are entitled to compensation where there are reasonable grounds for it for both economic and non-economic losses.

Tax practitioners are at the mercy of the ATO when systems fail to deliver as there is absolute reliance placed on these systems in making taxpayer lodgements. The major outages in late 2016 and 2017 and the ATO’s change program where a new information technology system was deployed are prime examples of such technological failures. With respect to the latter, the issues faced by tax practitioners included such things as:

  • deployment of software that contained deficiencies and major flaws,
  • ceasing to receive ATO correspondence/communications,
  • outages that extended beyond the ATO’s standard service period, and, more recently,
  • a system error that inadvertently led the ATO to issue incorrect pre-dated excess non-concessional contributions determinations to clients.

To our knowledge the claims made by tax practitioners for financial losses incurred from the above events under the CDDA scheme have been rejected by the Commissioner of Taxation on the grounds the system failures are taken not to be defective administration. The issue as to what constitutes defective administration remains unresolved since the Inspector-General of Taxation (IGT) Review into the ATO’s Change Program. In the review, the ATO disagreed with the recommendation of the IGT that it “work with the tax practitioner community to robustly and openly reconsider its position on compensation claims under the CDDA scheme and the process by which such claims should be made”.

Where tax practitioners suffer an ATO outage that prevents them from accessing the tax agent portal or from lodging returns for their clients, the types of economic and non-economic losses suffered can include, but are not limited to, the following:

  • loss of income and opportunity costs,
  • loss of productivity,
  • psychological injury, such as stress and anxiety, and
  • reputational damage.

Admittedly, while it can be difficult to quantify these types of non-economic losses, we contend compensating for such losses warrants inclusion in any proposed changes to the CDDA scheme. Further, to reduce the costs to tax practitioners of submitting a claim under the scheme, consideration should also be given to blanket redress arrangements in situations where all tax practitioners are affected by defective administration by the ATO.

Increasingly, there is a greater reliance by taxpayers and tax agents on digital interactions with the ATO. While we have had relatively stable and event-free ATO administration of IT of late, we need to be better prepared to resolve productivity and reputational issues in the event of future digital disruption. We welcome the review and hope it leads to better outcomes.

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