How a free tax clinic is rescuing the overwhelmed
A nationwide initiative meets a genuine and otherwise unmet community need
When the school of taxation and business law at UNSW Business School launched a Tax Clinic earlier this year, the team running it were surprised to discover the depth of the problems facing Australia’s most vulnerable taxpayers.
The clinic had been expecting to mostly help clients who faced Australian Taxation Office (ATO) current debt recovery, or those who wanted to object to ATO tax liability decisions.
Instead, they discovered that, on average, clients were nine years behind in lodging tax returns and faced about $50,000 in ATO liabilities, not including other debts they may have.
Mental health issues, gambling addictions and an inability to hold down a job were common threads running through most of the cases, says one of the clinic’s co-founders, Ann Kayis-Kumar.
“The number of years outstanding and the volume of the tax debts, the dollar amounts, amazed us, and that kind of thing is quite challenging for tax agents,” says Kayis-Kumar, a senior lecturer in the school of taxation and business law.
“If a tax agent thinks a potential client might have to file for bankruptcy they might not take them on because they probably won’t get paid,” she explains.
'When things get out of hand some people ignore the letter from the ATO and hope the problem goes away, which just makes the problem bigger'
'We are here to help'
UNSW Tax Clinic is part of a nationwide pilot program of 10 clinics across Australian universities funded by the federal government to help individuals and small businesses that may not be able to afford proper advice and representation. The idea is not completely new; the US has been running clinics for low-income taxpayers since the 1970s.
The Australian clinics were set up in the wake of media allegations earlier this year that the ATO was harassing and bullying small business taxpayers. Former inspector general of taxation, Ali Noroozi, claimed the ATO makes mistakes in about 5% of cases.
UNSW Tax Clinic targets the most vulnerable members of the community, mainly through referrals from financial counsellors and legal services.
Australians face a heavy tax compliance burden compared with people in other countries, says Kayis-Kumar, so it’s no surprise that about 70% of individuals and 90% of businesses engage a tax agent.
“If you can’t afford or don’t have the network to get tax advice we are here to help,” she says.
The clinic employs registered tax agents to supervise both UNSW Business and UNSW Law students who have volunteered to work in the clinic. Under supervision, the students negotiate with the ATO on behalf of clients, help clients understand their obligations, and outline ways they can resolve their tax problems.
However, one of the key barriers for tax practitioners who want to give back to the community by working or volunteering for tax clinics is that they currently need to intermingle their non-clinic clients with their clinic clients.
So Kayis-Kumar and her colleagues welcome Treasury’s identification of this problem through its Review of the Tax Practitioners Board.
The UNSW Tax Clinic team strongly supports Consultation Point 5.10 (Should the eligibility criteria for registration be amended so that universities and not-for-profit organisations that run tax clinics are able to register?) because allowing universities and not-for-profit organisations to register their tax clinics as tax agents would likely encourage even more tax professionals to assist tax clinics.
It’s invaluable work experience for students, says Kayis-Kumar, and the clinics also help develop a pro-bono ethic in the tax community, assist the government via improved tax compliance for otherwise unrepresented taxpayers, and provide a measure of tax justice for the broader community.
'This is an issue that is only going to grow as time goes on'
Falling through the cracks
Several issues are increasing the pressure on taxpayers struggling to meet their ATO obligations, says Kayis-Kumar. First, though the ATO provides a free service to help people complete their tax returns through its Tax Help network, the service is only available between July and October, and contractors and many small businesses are not eligible.
And as more workers are being categorised as ‘contractors’ rather than ‘employees’ – for example, Uber drivers and food delivery couriers – more taxpayers are facing a higher tax compliance burden, and could be falling through the cracks, says Kayis-Kumar.
Some people fail or forget to lodge a tax return for several years, then can’t face the problem because it has become too big or too complicated, she adds.
“This is an issue that is only going to grow as time goes on. What we are seeing is that when things get out of hand some people ignore the letter from the ATO and hope the problem goes away, which just makes the problem bigger,” Kayis-Kumar says.
On top of that, many tax professionals are reluctant to take on ‘problem’ clients because they fear they won’t be paid or because the ATO will tighten the lodgement deadlines for all of a tax practice’s clients if some clients are tardy.
The UNSW team wants to quantify the size of the problem.
“We see the clinic as a platform to do grassroots research in a segment of the population that up until recently hasn’t really received that much attention in the Australian tax literature.”
Kayis-Kumar and her colleagues – professor Michael Walpole and senior lecturer Gordon Mackenzie in the school of taxation and business law, and Jack Noone from the UNSW Centre for Social Impact – are presently conducting the first nationwide survey asking financial counsellors whether there is an unmet need for free tax advice referral services in their sector.
Preliminary findings show there is an overwhelming need, with all surveyed participants indicating financial counsellors would benefit from such a service. Further, more than 70% of surveyed participants observe that the need for tax advice has been increasing over time.
The UNSW Tax Clinic team has also made submissions to Treasury and the ATO, and hope funding for university-based tax clinics is continued and expanded.
“That would be the ideal. We hope that we will get ongoing funding for this nationwide initiative which addresses a genuine and otherwise unmet need in the community,” Kayis-Kumar says.
“Our ultimate mission is to improve compliance and access to tax justice for marginalised members of the community by providing tax advice and advocacy, empowering individuals and small businesses through community education, and removing systemic injustices by advocating for tax reform.”