The tax system is being used as a weapon by family violence perpetrators, with our rigid tax system an unwitting ally that inflicts more damage on people trying to flee dangerous situations.
Ann Kayis-Kumar, the founding director of UNSW’s tax and business advisory clinic, is frustrated.
“This is such a perverse outcome. The way the system is currently designed, they can get away with it,” she said.
Inside the clinic, women have help from experienced tax advisers to unravel their situations. Many discover they have been appointed as directors to now-failed companies or have been loaded up with enormous debts sometimes totalling hundreds of thousands of dollars.
“The way that the system is structured, perpetrators can weaponise the system so the victim-survivor is saddled with debts that the perpetrator created,” she said.
The Australian Tax Office (ATO) is mandated to pursue debts.
The clinic said the agency had been reluctant to fix what was a clear problem.
“The system works in such a way that the ATO is unwittingly mobilised to further the perpetrator’s tactics of abuse.”
In the US and other nations, tax agencies have changed policies to achieve a radical reversal; moving the debts back to the perpetrator.
Experts want to see that in Australia too.
‘Disturbing’ amounts of debt
In the clinic, a free service operating out of the University of New South Wales, victim-survivors of family violence learn difficult truths about their debts.
“[They are] very large [sums] in lots of cases, and very disturbing,” Tony Martins, principal tax clinic supervisor said.
The nature of coercive control, a combination of behaviours that restrict the lives and choices of people in abusive relationships, means some victim-survivors are unaware their personal details have been used to make them responsible for debts or appointed as company directors.
(ABC News: John Gunn)
“It’s a very stressful situation they find themselves in,” Mr Martins said.
“They don’t know where to turn. We’ve had clients on suicide watch because of these matters.”
In a statement, a spokesperson for the ATO said it acknowledged that some people incurred debts because of situations involving abuse.
Referring specifically to people appointed under duress as directors of companies, the statement said:
“There are actions the ATO can take to support taxpayers who are impacted by domestic violence as they work through their situation. This can include pausing recovery action to give the taxpayer time to seek advice and support.
“In certain circumstances, directors may have a valid defence that would remove their director penalty debt. These are generally available for people who, for good reason, did not ever take any part in managing the company.
“Remission of the director penalty debt may also be available in other very limited circumstances.”
Samantha’s story
Mr Martins gives the example of a woman we will call Samantha.
She and her children are in temporary housing after suffering physical and financial abuse from her ex-partner.
To meet daily expenses she is receiving meagre Centrelink benefits.
At the clinic, Samantha discovered that an Australian Business Number (ABN) in her name was used more than a decade ago to start a business that now has a tax debt of $155,000.
“She did not receive any financial benefit from this business,” Mr Martins said.
“She was not involved in running the business, however, the debt is in her name.”
“To top that off, she also has a Centrelink debt because the income from that business that she never received has, of course, affected her Centrelink benefits that she receives.”
Mr Martins and Samantha have had success with some agencies and institutions around the compromised and exploited nature of her identification documents and ABN.
But the ATO has not been receptive.
It is still chasing the $155,000 debt despite her living below the poverty line.
“We’re in discussions in order to try and have these debts in her name, that she didn’t incur … taken off her name,” Mr Martins said.
“But it’s not that easy with the ATO. It’s a total mess at the moment. And the ATO holds all the power.”
Life derailed by debt
During the COVID-19 pandemic, the tax office did not pursue debts.
But as restrictions ended and the economy took off, the ATO said it was owed more than $15 billion from 1.8 million entities and it set about chasing them up.
Caught up in that was Adriana Carrington, whose life was derailed by activity in the 2008/09 financial year by debt that she never knew existed.
After Ms Carrington investigated how the debt came about, she learned her ex-husband was placing income into a trust under her name.
While she did not receive income from that trust, its existence created a debt under her name.
In 2015, the ATO deemed the 2008 debt, which at the time was about $15,000, as “uneconomical to pursue”, but she was one of thousands of Australians who received notices late last year about old tax debts.
Ms Carrington called it “Robotax”.
“It’s been really hard — mentally, really hard,” she told the ABC at the time, after the ATO rejected her requests to waive the debt.
“I’m already 55 years old — I’ve only got a certain amount of working time left and I have no superannuation that I can draw on.”
After Ms Carrington’s story became public, the tax commissioner called her and waived the interest on the debt.
The debt has now been waived entirely.
In its statement to the ABC, the ATO explained how very old tax debts might be put on hold.
“As part of the 2024-25 Budget, the Government has announced it intends to change the law in respect to debts placed ‘on hold’ prior to 1 January 2017,” it said.
“This is a limited proposal that provides a discretion not to offset refunds against tax debts of individuals, small businesses and not-for-profit entities, where the debts were placed on hold prior to 1 January 2017 and remain on hold.”
$90,000 is the average debt level
At Dr Kayis-Kumar’s clinic, stories like Ms Carrington’s are familiar but dealing with them is harder.
The average debt level of a victim-survivor who attends the clinic is $90,000.
“And that’s on top of the other debts,” she said.
“Given our average client income level is below $45,000 a year, that really is an insurmountable level of tax debt to be navigating.
“And it’s particularly problematic if that debt wasn’t even created by that person in the first place.”
A change announced in the federal budget gives the tax office the ability to defer debts. But not to shift them to others.
“The system is quite rigid,” Dr Kayis-Kumar said.
“Tax law assumes that if you have a partnership or some other sort of business arrangement, that you have equal access and control of finances.
“But that doesn’t play out in these circumstances.”
“We see money is used as a weapon to control these people. That then flows into the tax problems that they’re faced with.”
Research by Dr Kayis-Kumar and her project team reveals that approximately 14 per cent of women facing financial hardship due to tax debts have incurred them through situations involving intimate partner violence.
“We call it sexually transmitted debt,” she said.
“That person has used your name and business structures to put debts in your name and financially benefit.”
The impact is severe long after victim-survivors are no longer living with offenders, and includes elements such as:
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reduced assets
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insecure housing
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prolonged economic instability
“Often, and really troublingly, it is a lack of economic security after someone has escaped a financially abusive situation that can drive them back into that relationship,” Dr Kayis-Kumar said.
Understanding the impact of violence
From being an “unspoken” issue just decades ago, our understanding of domestic and family violence has evolved rapidly.
“And with that has come an understanding of the way that systems can be weaponised and harnessed to help perpetrators to cause harm,” according to Domenique Meyrick, co-CEO of Financial Counselling Australia, which runs the National Debt Helpline.
That has led to good change.
Since 2023 employees affected by family and domestic violence can access at least 10 days of paid leave annually.
Banks, financial institutions and utilities have also markedly changed systems and processes to deal with the reality that some customers have had debts created by abusive ex-partners.
This has been “a wave of accepting that there is a responsibility to prevent harm being caused through the system,” Dr Meyrick said.
But it has not fully reached the ATO.
“We would like to see some of those obstacles removed,” Dr Meyrick said.
“And we’d also like to see some work reviewing what the ATO can do in order to respond appropriately to people who are affected by family violence.”
“We would like to see the ATO being enabled to go on that journey.”
What is a director penalty notice?
Using the case of “Janine” — a pseudonym — as an example, the tax clinic’s supervisor Annette Tasker explained how hard it was for people to escape the problem.
A victim of physical violence and financial abuse, Janine was coerced to leave her job, which made her financially dependent on her ex-husband.
He made her sign documents so she became a director of a company that he ran.
When the relationship broke down several years later, she was able to escape but was issued with a director penalty notice (DPN) by the tax office.
As director of that company, over which Janine had no control, say or visibility, she was liable for unpaid tax debt, GST debt, and unmet superannuation.
With the way the law stands, all Janine and the clinic can do is attempt to negotiate with the tax office and make a payment plan.
“Her next alternative is bankruptcy. That may be her only option,” Ms Tasker said.
This is despite ATO staff often recognising the issue.
“Yes, the person you speak to on the phone may be sympathetic, but they’re hamstrung by the law,” she said.
“The legislation is that you chase this person for the debt: the director. That’s the way the law is … there’s no option for them to go any other route.”
The US tax agency, the Internal Revenue Service (IRS) has made the shift, with a program for “innocent spouse relief” from debts.
Dr Kayis-Kumar says our annual tax deadline of June 30 is the time to make that change in Australia.
“Economic abuse is something that we know is really problematic across our whole community, and we have an opportunity here for the ATO to turn things around,” she said.
“This is just such an invaluable … opportunity that shouldn’t be squandered, where people can be supported rather than [have] the system as it currently stands.”
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