The ATO has the power to stop a taxpayer from leaving the country if they owe a tax debt. It can do this by issuing a Departure Prohibition Order. Once the ATO issues a DPO, you cannot leave Australia until the tax debt is fully paid or you reach a settlement with the ATO.
DPOs came into the spotlight in 2010 when the Commissioner of Taxation served one on actor Paul Hogan. Hogan, a US resident, had been in Australia for his mother’s funeral. The ATO said he had unpaid tax and penalties of around $150 million dating back from the late 1980s. A Departure Prohibition Order was issued to him, keeping him in Australia until the tax debt was sorted out.
Ultimately, a confidential settlement was reached between Hogan and the ATO and he left Australia. But it left many with questions about the nature of DPOs and when the ATO can use them.
When does the ATO issue a Departure Prohibition Order?
A Departure Prohibition Order is one of the many tools that the ATO can use to collect unpaid tax debts. But it is not used very often.
In practice, DPOs are usually issued only where there is a significant tax debt. As of 30 March 2016, there were 14 active Departure Prohibition Orders. Between 1 July 2014 and 30 June 2015, the ATO issued nine DPOs and revoked five.
A DPO restricts a taxpayer’s liberty and freedom of movement, which is a very serious matter. Because of the seriousness of this restriction, the law has very strict requirements on when the ATO can issue a DPO. They are only authorised by senior management within the ATO.
Why does the ATO issue Departure Prohibition Orders?
There is a very good reason for the ATO to use Departure Prohibition Orders. It is because, in private international law, it is against public policy for one country to help another country to enforce its tax debts.
For example, if a person in France owes money to the ATO, public policy says that the French government should not help Australia to collect that debt.
Different countries have different ways of giving effect this rule and there are some exceptions. But the bottom line is, the Australian government cannot rely on other countries to help it to collect its tax debts.
This is where DPOs come in. If the ATO wants to collect money from you, then it has a much better chance of doing this if it keeps you in Australia.
What will the ATO consider before issuing a Departure Prohibition Order?
The tax law says that the Commissioner of Taxation can issue a DPO if:
- a person has a tax liability, and
- the Commissioner believes on reasonable grounds that it is desirable to issue the DPO to make sure that the person does not leave Australia without:
- wholly discharging their tax liability, or
- making arrangements satisfactory to the Commissioner for the tax liability to be wholly discharged.
In simpler terms, the Commissioner must have the reasonable view that the ability to recover tax would be impaired by the person leaving Australia.
The ATO has issued a practice statement that contains examples of the factors that it will consider when deciding whether to issue a Departure Prohibition Order. This is Practice Statement 2011/18 – ‘Enforcement measures used for the collection and recovery of tax-related liabilities and other amounts’.
These factors include whether:
- there is a tax liability and whether it can be recovered
- the ATO is aware of assets that are sufficient to pay existing and future tax liabilities and whether those assets are in a readily-realisable form
- recovery proceedings are underway
- the person has recently disposed of assets to related parties
- there is any information to suggest the person is concealing assets or moving funds
- the person has borrowed money and provided security over assets in Australia, then moved the borrowed funds overseas
- the person has assets overseas that are sufficient to maintain a comfortable lifestyle
- the person has significant business interests in Australia
- the person is being investigated for criminal activities (and whether any charges have been laid)
The effect of a Departure Prohibition Order
Once a DPO has been made, you are stuck in Australia. If you attempt to leave, you will be stopped by a Customs Officer or a member of the Australian Federal Police.
How to leave Australia after a DPO is issued
There are three ways you can leave Australia after a Departure Prohibition Order has been made against you.
- Have the DPO revoked by the Commissioner
- Have the DPO set aside by the court
- Have a Departure Authorisation Certificate issued
Option 1 – How to have a Departure Prohibition Order revoked
There are essentially 3 reasons that the ATO would revoke a Departure Prohibition Order.1
Your tax debt is paid
Firstly, if you have paid all of your tax debt, and the Commissioner is satisfied that you will pay your tax debt in the future, then the ATO can revoke the DPO.
In practice this can be difficult, as quite often the tax debts that underpin the DPO are huge amounts of tax that are being disputed.
Often the taxpayer believes they owe very little tax and that they have strong grounds to argue against the ATO’s assessment. They want to have the dispute determined by a Judge (or settled with the ATO) before they pay any of it. They do not want to pay the large amount demanded by the ATO until they are satisfied that it is the right amount of tax.
Disputes with the ATO often take a long time to resolve. This means that unless you’re willing to pay the full disputed amount to the ATO long before the dispute is resolved, you cannot have the DPO revoked under this first option.2
You are unable to pay your debt
Secondly, the ATO can revoke the DPO if the Commissioner is satisfied that your tax debts are completely irrecoverable.
This would require you demonstrating to the ATO that you have no access to funds whatsoever, including that you have no funds held overseas or under any trust arrangements.
This can be difficult to show. Often, taxpayers are unwilling to provide the level of disclosure requested by the ATO, which means that a revocation under this option is rare.3
The Commissioner’s exercises his discretion
Thirdly, a DPO can be revoked for any other reason at the Commissioner’s discretion. The ATO has said that, in considering such a discretion, the Commissioner would take into account:
- all the relevant facts and circumstances that led to the making of the DPO including any material changes to those facts and circumstances, including the amount of the tax liability, that have occurred since the making of the DPO
- any additional factors of relevance advanced by the taxpayer in support of the application for revocation of the DPO, and
- any other risks to the revenue that have materialised since the making of the order.
This is not such a helpful list.
However, some case law also provides clues as to what the ATO will, or will not, consider. For example, in the 2009 case of Troughton v. Commissioner of Taxation (2008) 166 FCR 9, the Federal Court said that, in considering whether to revoke a DPO the Commissioner did not have to consider humanitarian circumstances (such as the fact that the taxpayer’s wife was undergoing breast cancer treatment in the UK).
Option 2 – Applying to have Departure Prohibition Order set aside
You can apply to the court to set aside the DPO. This application would be made on the basis that the Commissioner issued the Departure Prohibition Order in circumstances where he should not have.
An example of a successful appeal is the 2008 case of Pattenden v Commissioner of Taxation  ATC 20-063. In that case, the court found that the taxpayer’s circumstances did not support that the Commissioner believed it was desirable to issue the DPO to prevent Pattenden leaving Australia before his tax debt was fully paid. That is, the court found that the facts didn’t meet the criteria for issuing the DPO. The key factors were that:
- he had attended all ATO requested interviews
- he had an English passport, and yet made no attempt to leave the country travelling on this passport
- he had been increasing his Australian investments – he had not been pulling money out of the country.
Another successful appeal was in Christopher Skase v Commissioner of Taxation (1991) 32 FCR 206. In that case, the ATO acknowledged that there was little chance of Mr Skase paying his tax debt. However, the ATO said that the best it could do in the circumstances was to force Mr Skase to file for bankruptcy. The ATO said that this would result in some payment to the ATO and that would fall within an ‘arrangement satisfactory to the Commissioner for the tax liability to be wholly discharged’.
The court found that the reason for issuing the DPO wasn’t to keep Skase in Australia so that he could pay his tax debts or make arrangements to pay it. It said that the real reason was to force his hand to file for bankruptcy – if he did this, the Commissioner would withdraw the Departure Prohibition Order.
The court ordered that the Departure Prohibition Order issued to Skase had to be set aside. It said that allowing the Commissioner to use a DPO in this way would take it too far.
These cases go to show that, just because the ATO issues a DPO, it doesn’t mean they are right.
Option 3 – Have a Departure Authorisation Certificate issued
It may be possible to negotiate with the ATO to issue a Departure Authorisation Certificate. A DAC effectively suspends the DPO.
To obtain a Departure Authorisation Certificate, an application must be made to the Commissioner.
There are three circumstances in which the Commissioner can issue the certificate.
Firstly, he can issue it where he is satisfied that:
- if he issued the certificate, it is likely that:
- the person will depart Australia and return in a period considered appropriate by the Commissioner; or
- the tax debt will be recovered in full in a period considered appropriate by the Commissioner, or the tax debt is completely irrecoverable; and
- it is not necessary or desirable for the person to give security for their return to Australia;
Secondly, he can issue a Departure Authorisation Certificate if the person has given appropriate security.
Thirdly, he can issue a Departure Authorisation Certificate where, a person is unable to give appropriate security, but the Commissioner is satisfied that:
- the certificate should be issued on humanitarian grounds; or
- not issuing the certificate would be detrimental to the interests of Australia.
This last option will only be considered where the person is actually unable to provide security. Being unwilling to provide security is not enough to access a Departure Authorisation Certificate on humanitarian grounds. Often, this will require the taxpayer to disclose their worldwide assets to the Commissioner, so the Commissioner can assess their ability to provide the security.
If the Commissioner refuses to issue a Departure Authorisation Certificate, then the decision can be appealed to the Administrative Appeals Tribunal.
About Hartigan Law
I am a specialist tax disputes lawyer with over a decade of experience in dealing with the ATO.
I have helped many clients to object to and appeal the ATO’s decisions and to reach settlements on disputed tax amounts. I particularly have experience dealing with a Departure Prohibition Order, and the strategic considerations when one is in force.
I work with clients all over Australia and internationally. I can do this because the tax issues I deal with are Federal – if you’re dealing with the ATO, then I can help.