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

The Australian Taxation Office has awarded the private debt collector Recoveriescorp more than $42m in contracts as part of a hard-edged campaign to pursue some taxpayers, including welfare recipients. The size of the contracts, published on the government’s tender portal, shows how much the ATO has come to rely on the third-party collector in recent years, which has coincided with a spike in complaints to the watchdog. Recoveriescorp staff have worked inside ATO offices since 2022 as an extension of the agency’s debt collection team. The relationship expanded in 2024 to include offsite services, whereby the private collector started chasing debts under its own name. Guardian Australia reported on Monday the ATO had referred more than 355,000 taxpayers to the private equity-backed Recoveriescorp since January 2024. Related: ATO refers hundreds of thousands of taxpayers to a private debt collector – including people on Centrelink benefits One of those taxpayers detailed her experience of being given one week to pay $2,590.33 or risk further recovery action, which Recoveriescorp said could include legal action by the ATO. The 55-year-old, who was receiving unemployment benefits, was already paying off her tax debt through regular instalments to the ATO when she was referred to the external collector. A Recoveriescorp spokesperson said the collection agency was unable to comment on arrangements with individual clients due to contractual restrictions. Sign up: AU Breaking News email The representative said Recoveriescorp was committed to treating all customers with respect and that it adheres to collection guidelines. Kirsty Robson, a senior financial counsellor from the Consumer Action Law Centre, said there had been an “enormous uptick” in recent years of consumers requesting help after being pursued over tax debts. She said the ATO works on the assumption that if a taxpayer is not engaging with them, it’s because they don’t want to. “There’s no understanding of vulnerability or family violence, things of that nature, where a tax debt is unmanageable,” Robson said. “The enforcement then increases in severity, which only exacerbates someone’s vulnerability. “It’s a systemic problem.” The tie-up between the ATO and the Allegro-owned Recoveriescorp was part of a push to retrieve tax debts that escalated early in the pandemic when the revenue collection agency was under instruction to take a lenient approach. It was not widely known the tax office had been using Recoveriescorp’s staff prior to 2024, when it publicly announced it would start referring taxpayers to the private collector. The tax office has consistently said it needs to do more to recoup the roughly $50bn in outstanding collectible debt, which it describes as mostly self-reported by taxpayers. An ATO spokesperson said the Recoveriescorp contract was a “flat fee-based commercial model” with no bonuses paid based on performance. The spokesperson said Recoveriescorp employees work at the ATO operate under the same policies, procedures, security checks and other requirements as tax office employees. Offsite collectors are also subject to ATO-approved guidelines, the spokesperson said. The ATO published a vulnerability “framework” last month which the tax office said was “our commitment to making sure our processes, strategies, and culture are shaped by a deeper understanding of vulnerability”. Final notice Recoveriescorp’s “final notice” demand letters are largely identical, according to a sample received by different taxpayers and viewed by Guardian Australia. They give the recipient seven days from the issue date to pay, and warn that if ignored the ATO may garnish their income or take legal action. One taxpayer, who asked not to be named, said he only received the letter three days before the payment deadline, which he described as a tactic to “rush you, cause maximum panic”. Related: ATO rebuked by tax watchdog for using debt collectors on people ‘doing the right thing’ He said the “final notice” letter was the first he knew of his referral to a private debt collector. While debt collection guidelines do not prescribe a minimum notice period, there is a general requirement to be reasonable. The tax ombudsman reminded the ATO on Tuesday to “take into consideration individual taxpayer’s circumstances” after recording a spike in the number of complaints about the agency’s debt collection processes. The independent federal politicians Zali Steggall and Andrew Wilkie have sharply criticised the use of a private debt collector to pursue at-risk individuals, labelling it “heavy-handed” and indicative of “deep cultural problems” within the ATO. The total value of contracts awarded to Recoveriescorp since 2022 is $42,787,967.71, according to the tender portal. Do you know more? Email jonathan.barrett@theguardian.com