ATO to have more power to hold refunds indefinitely
New legislation drafted by the Australian Government last week would allow the Australian Taxation Office (ATO) even more power to withhold tax refunds for an undefined period of time, warns BDO Tax Partner Mark Molesworth.
The draft legislation, released on 15 February 2012, would allow the ATO to withhold refunds – from both businesses and individuals – for at least 60 days without challenge if it considers the refund requires further verification.
Mr Molesworth warns the proposed legislation essentially allows the ATO the right to hold a refund indefinitely when it deems further verification is needed.
“Basically, the proposed legislation would allow the ATO more power to retain refunds for any period of time to undertake checks to verify the correctness of the amount claimed,” Mr Molesworth said.
“At the end of the initial verification period, the taxpayer can challenge the continued withholding of the refund, but this would be at the taxpayer’s expense,” he said.
Mr Molesworth said such processes could mean unnecessary costs for the honest Australian tax payer.
“The proposed legislation could mean a significant amount of unnecessary costs to the honest tax payer, who may be forced to challenge the ATO to access their refund,” he said.
“While verification checks within a reasonable timeframe are absolutely necessary, there needs to be a positive obligation on the ATO to either refund the money or to take action in the tribunal to validate continuing to withhold the refund.
“With many Australian tax payers relying on tax refunds to meet cash-flow requirements, we need to be certain that public officials who are making the decisions to withhold taxpayers’ money are held accountable for such actions,” he said.
Mr Molesworth said the ATO has always had the ability to assess – or re-asses – the taxpayer if it is considered the refund is not owed, therefore extensive powers to withhold refunds are simply not necessary.
The proposed legislation would apply in relation to refunds and payments arising under all taxation laws that the ATO administers.
The Government has allowed just under a week for consultation on the proposed legislation, with submissions closing today.