Director of data management at the ATO, Tyson Fawcett appeared as a witness at a royal commission into the now defunct scheme in Brisbane on Monday.
Mr Fawcett agreed with a description of the ATO's role in the data sharing as "passive" and said until issues were aired in the media he was essentially unaware of how the data was being used.
The Department of Human Services, which runs Centrelink, used annual income data provided by the ATO to calculate debts of those it deemed had received incorrect amounts of welfare.
According to email records, in July 2017 after media reports emerged, Mr Fawcett told the DHS either to agree to an urgent meeting to discuss how the data was being used or "cease and desist" with the scheme.
Mr Fawcett told the inquiry that as best as he could recall, his concerns related to the averaging of annual data to determine fortnightly income, which he said was simply not accurate.
From 2015 until 2020, the scheme wrongly recovered more than $750 million from 381,000 people, with several victims taking their lives while being pursued for the false debts.
Emails shown to the commission from Mr Fawcett initially asked for clarity as to how the data was being used and later offered to explain the limitations as he saw them.
An earlier email to the DHS that included the "cease and desist" line received a response from DHS representative Ali McRae.
Despite agreeing to work more closely on the scheme, Ms McRae replied "there are currently a range of measures the Government has asked us to deliver which rely on the data matching capabilities of our organisations and this work needs to continue."
Commissioner Catherine Holmes AC SC suggested to Mr Fawcett, "it looks very much as if she's telling you to back off because this is what the government wants."
"If I read it as it is, it definitely could imply that," Mr Fawcett replied.
Executive advisor for the ATO's Data Advisory Services, Michael Kerr-Brown also faced questioning by the commission on Wednesday.
Lines of inquiry included why pressure on the DHS to address issues with the averaging system were effectively dropped.
In one email viewed by the commission, Mr Kerr-Brown suggested it was Government pushing for the scheme to continue rather than the DHS, due to its potential to save the federal budget around $1.2 billion.
"There were comments made on the sidelines of meetings that indicated there was ministerial pressure being applied and that the government had an agenda," Mr Kerr-Brown told the commission.
Also appearing as witnesses on Monday were the Community and Public Sector Union's national secretary Melissa Donnelly, and former deputy national president, Lisa Newman.
Ms Donnelly and Ms Newman reported their members repeatedly raised concerns about the program from around 2017, including how the debts were being calculated using the unchecked averaging method.
"People were alarmed at its use and at the circumvention of staff reviewing that debt," Ms Newman told the commission.
Ms Newman added during that time members saw an increase in customer aggression and distress which took an impact on their mental health and wellbeing.
"Members were absolutely incensed about the impact this had on people from non-english speaking backgrounds...and also the impact on First Nations people," she said.
Former prime minister Scott Morrison and ex Liberal-National government minister Marise Payne are due to front the commission later this week.
