Robo-debt: ATO relied on DHS data when garnishing tax returns

The Australian Taxation Office (ATO) has revealed the process for garnishing the tax returns of individuals where a Centrelink debt is considered "owed".

Appearing on Monday before the Senate Community Affairs References Committee and its inquiry into Centrelink`s compliance program, colloquially known as robo-debt, ATO acting second commissioner of client engagement Jeremy Hirschhorn said his agency relies on data provided by the Department of Human Services (DHS) when taking money from a tax return.

"In our system, we have a flag that DHS told us they have a debt that they wish us to garnish if we do a refund. We give information when there's a refund due to DHS and DHS tells us at that time whether there's a debt they would like us to garnish," he explained.

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"DHS give us a list of their clients who have debts and we put a flag on our files when we work out there's a refund due to that person we will let DHS know."

During the 2016-17 financial year, the ATO garnished the tax return of 45,000 Centrelink recipients. Hirschhorn said the total value was AU$38 million.

In 2017-18, 40,000 recipients had their return garnished, totalling AU$32 million; while in 2018-19, 74,000 individuals had a total of AU$63 million garnished.

For the current financial year to 31 October 2019, 66,000 individuals have had their tax return garnished, with AU$72 million already handed to DHS.

The government paused the automated income assessment aspects of the system in November, asking compliance staff to not base debt calculations on data solely from the ATO.

As the only data available to Hirschhorn was up until October 31, he was unable to say whether pausing the contentious elements of the program had resulted in less people being flagged for having their refund garnished. He did say however, that as tax returns are due by October 31, "seasonality" would by default see a drop in refunds garnished.

"I'd have caution on the 19-20 year-to-date figures because I would suspect it is highly seasonal, but yes there was a significant increase between 17-18 and 18-19," he said.

When asked why there was a substantial jump from individuals affected in 2017-18 to 2018-19, Hirschhorn said more requests from DHS to garnish were made.

"At the risk of being obtuse, that we received more notices from DHS," he said.

In a test case brought by Victoria Legal Aid and Deanna Amato in Federal Court last month, the federal government conceded major elements of robo-debt are unlawful, in a letter stating its averaging process, 10% penalty fee, and seizing of tax returns are unlawful.

Hirschhorn was asked how the ATO was content to carry on facilitating the refund garnish without questioning the debt, particularly in light of the process being found as being unlawful.

"We rely on the competence of DHS and when they say that a debt is due, that it is due," he said. "The validity of the debt is a matter for DHS.

"DHS can garnish tax refunds through us, we don't garnish other things, we don't do the garnishing, we are the garnished in a way as we, in a sense, follow -- we are requested to take some of the refund and provide that to DHS.

"We are not in the business of double guessing whether the debt is valid or not."

In light of pausing the process, Hirschhorn said that if DHS changes its process, there would likely be less refunds garnished.

"There is no sense that there are past debts lingering in our systems waiting to be garnished, all there is on our system is a flag of a debt DHS may be interested in having us garnish," he said.

Hirschhorn said to his knowledge that there are no other income, entitlements, or payments which have been garnished due to Centrelink compliance.

"The tax office, we don't have that capacity, we wouldn't garnish; the tax office, in relation to tax debts, may, in extremely rare circumstances, garnish wages. We would not garnish wages on behalf of other agencies," he explained.

DHS, now Services Australia, last month claimed its robo-debt error rate was around 1%.

Providing an update on the program during Senate Estimates, Services Australia general manager of debt and appeals division Anthony Seebach said robo-debt had contributed under 10% of all debt recovery that Centrelink has performed since it came into force.

"If we just look at debt recovered for the life of the income compliance program ... we've recovered about AU$0.64 billion through the income compliance program," he said.

"At the same time, or over the same period, we've collected AU$6.73 billion in the broader debt recovery program."

For overall debt recovery, as of August 30, approximately 1.47 million outstanding social welfare debts were identified with a value of AU$4.89 billion, Seebach said.

"In the 2018-19 financial year, the department recovered AU$1.85 billion in social welfare debts, up from AU$1.7 billion in 2017-18," he said.

"For the period 1 July [2018] to 28 June [2019], approximately 2.27 million debts with a value of approximately AU$3.36 billion was raised in connection to social welfare payments, in that year."

Cases are no longer being referred to the ATO for garnishing, Services Australia deputy secretary of integrity and information Ros Baxter added later during the hearing on Monday.

The department's representatives however are unsure how many incomplete garnishing activities are still with the ATO.

Updated 12:08pm AEDT on December 16, 2019: Added comments from Services Australia.

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