ATO is paying private debt collector $42m to pursue taxpayers, including welfare recipients | Tax

The Australian Taxation Office has awarded more than $42 million in contracts to private debt collector Recoveriescorp as part of a tough campaign to go after some taxpayers, including benefit recipients.

The size of contracts published on the government’s tender portal shows how much the ATO has relied on third-party aggregators in recent years; This coincides with an increase in complaints to the watchdog.

Recoveriescorp staff have been working in ATO offices since 2022 as an extension of the agency’s debt collection team. The relationship was expanded to include off-site services in 2024, allowing the private collector to pursue debts under its own name.

Guardian Australia reported on Monday that the ATO had referred more than 355,000 taxpayers to private equity-backed Recoveriescorp since January 2024.

One of these taxpayers detailed his experience of being given a week to pay $2,590.33 or risk further bailouts; Recoveriescorp said this could involve legal action by the ATO.

The 55-year-old woman, who was receiving unemployment benefits, was already paying her tax debt to the ATO in regular installments when she was referred to external collectors.

A Recoveriescorp spokesman said the collection agency could not comment on arrangements with individual customers due to contractual restrictions.

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The representative said Recoveriescorp is committed to treating all customers with respect and follows collection rules.

Kirsty Robson, a senior financial adviser at the Consumer Litigation Law Centre, said there had been a “tremendous increase” in requests for help from consumers being pursued for tax debts in recent years.

He said the ATO worked on the assumption that if a taxpayer didn’t engage with them it was because they were unwilling.

“There is a lack of sensitivity or understanding of issues such as domestic violence, where tax debt is unmanageable,” Robson said.

“The severity of enforcement then increases, which only further increases someone’s vulnerability.

“This is a systemic problem.”

The link between the ATO and Allegro-owned Recoveriescorp was part of an effort to claw back mounting tax debts early in the pandemic, when the revenue collection agency was instructed to take a lenient approach.

It was not widely known that the tax office was using Recoveriescorp staff before 2024, when it publicly announced it would begin referring taxpayers to private collectors.

The tax agency has repeatedly said it needs to do more to recoup nearly $50 billion in unpaid collectible debt, mostly filed by taxpayers.

An ATO spokesman said the Recoveriescorp contract was a “fixed fee-based commercial model” where bonuses were not paid based on performance.

The spokesman said Recoveriescorp employees working at the ATO operate under the same policies, procedures, security checks and other requirements as tax office employees.

Off-site collectors are also subject to ATO-approved guidelines, the spokesperson said.

The ATO last month published a vulnerability “framework” which the tax office said was “our commitment to ensuring our processes, strategies and culture are shaped by a deeper understanding of vulnerability”.

latest notification

Recoveriescorp’s “final notice” request letters are largely identical, according to a sample received by different taxpayers and reviewed by Guardian Australia.

They give the buyer seven days from the date of issue to make payment and warn that if ignored the ATO could seize their proceeds or take legal action.

One taxpayer, who wished to remain anonymous, said he received the letter just three days before the payment deadline and said it was a “tactic to rush you and cause maximum panic”.

He said the first letter he knew of that referred him to a private debt collector was a “final notice” letter.

Although debt collection rules do not specify a minimum notice period, there is a general requirement that it be reasonable.

The tax ombudsman reminded the ATO on Tuesday that it must “take into account the circumstances of individual taxpayers” after recording a rise in the number of complaints about the agency’s debt collection processes.

Independent federal politicians Zali Steggall and Andrew Wilkie harshly criticized the use of a private debt collector to pursue at-risk individuals, describing it as “parsimonious” and indicative of “deep cultural problems” within the ATO.

According to the tender portal, the total value of contracts awarded to Recoveriescorp since 2022 is $42,787,967.71.