New insights from the Tax Ombudsman’s office, which investigates concerns about the ATO’s handling of debt, payment, and penalty decisions, show it has received 2,989 complaints so far this financial year.

That marks a 127% increase from the same point in the previous financial year.

Speaking to SmartCompany, ombud Ruth Owen said the increase was likely caused by two factors: the Tax Ombudsman’s growing public profile, and the ATO’s increasingly stern approach to overdue and unpaid debts.

“I want to be available and accessible to any taxpayer that’s got a complaint that needs resolving, but that can’t be the whole story,” she said.

Owen said the ATO’s changing strategies, from its increasing use of Director Penalty Notices and its decision to revive ‘on hold’ debts, have likely influenced her workload.

Debt collection sparks highest number of complaints

The ATO’s debt collection practices caused 23% of complaints, the most of any single issue.

Those activities have “significantly changed over the last one to two years, and that’s caused real strife within the community, particularly for small businesses,” said Owen.

Of those complaints, 19% referred to issues with the ATO’s handling of Director Penalty Notices (DPN), which can make company directors personally liable for debts incurred by a business.

In 67% of debt collection cases, the Ombudsman found the ATO’s actions were reasonable.

But some examples showcase gaps in the system.

The report notes one case where the ATO incorrectly applied a DPN on a taxpayer whose personal Tax File Number was identical to the Australian Company Number of an unrelated business.

While the ATO amended that error, a withdrawal letter “stated that a new DPN could still be issued in the future”, requiring intervention from the Ombudsman.

The ATO later apologised to the taxpayer, saying a DPN would not be raised again.

A broader Ombudsman review of the tax office’s administration of DPNs will commence this year.

Some 16% of debt collection complaints included reference to offsetting, where the ATO automatically uses a taxpayer’s expected tax refund to pay off an existing debt.

That issue was exacerbated by the ATO’s decision to thaw debts previously considered ‘on hold’, many of which were hidden from taxpayers’ view and not actively pursued by the tax office.

Offsetting tax refunds against those debts can “cause a lot of confusion” among taxpayers, said Owen, who stressed the importance of transparency and clarity from the ATO around its collection processes.

The data shows the Tax Ombudsman achieved “direct outcomes” from those offsetting complaints, like debts being reduced or released, or decisions being changed, in 7% of cases.

Penalty complaints rising sharply

Complaints about penalties and interest are also on the rise, growing from 2% of complaints in FY23 to 14% so far this financial year.

The General Interest Charge (GIC), the penalty applied to overdue tax payments, is a major driver: nearly four out of five complaints related to penalties centre on the GIC.

Owen, in March, released a report calling on the ATO to rapidly improve its handling of GIC remission requests, after finding the tax office issued inconsistent and unfair decisions.

“One of the biggest complaints we heard from taxpayers was about inconsistency, that people just couldn’t tell what the rules of the game were,” said Owen.

“You ring up one day, and you’d be able to get your interest remitted, and you ring up another day with exactly the same circumstances, and it would be rejected.”

The ATO accepted all of the Ombudsman’s recommendations, with those changes taking time to flow through its systems.

Transparency is key, says Ombudsman

Owen says even in circumstances where a decision goes against a taxpayer, transparency over the decision-making process can help.

“The vast majority of the population don’t speak tax, they need things clearly spelled out and understood,” she said, with ATO communications sometimes leaving people “bewildered, confused, and sometimes angry”.

“So I am constantly encouraging the tax office to look at their communications,” she added, pointing to a 2025 report on letters sent by the tax office (again, the ATO accepted all recommendations).

“It is a responsibility for every public service organisation to make sure that you engage with the community in the way that the community can best understand what you do.”

Some changes to the ATO’s communications protocol are already flowing through, said Owen.

“What they were missing was the fact that there is a right to an informal review within the tax office [regarding interest remission decisions], and I made that clear in my report,” she added.

“The ATO has already changed the website, so I would encourage everybody to make sure you read their website really clearly.

“If you’re told by anyone in the ATO you don’t have a right to review, that’s not actually correct. You do have a right to an informal review, to ask the ATO to reconsider their decisions.”

This post first appeared on SmartCompany. You can read it here

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