The ATO Debt Dilemma

Late last year, thousands of taxpayers and their agents were advised by the Australian Taxation Office (ATO) that they had an outstanding historical tax debt. The only problem was, many had no idea that the tax debt existed.

The ATO can only release a taxpayer from a tax debt in limited situations. An example is where payment would result in serious hardship. However, sometimes the ATO will decide not to pursue a debt because it isn’t economical to do so. In these cases, the debt is placed ‘on hold’, but it isn’t extinguished. It can be re-raised on the taxpayer’s account at a future time. For example, these debts are often offset against refunds that the taxpayer might be entitled to.

However, during COVID, the ATO stopped offsetting debts and these amounts were not deducted.

In 2023, the Australian National Audit Office advised the ATO that excluding debt from being offset was inconsistent with the law, regardless of when the debt arose. And by this stage, the ATO’s collectible debt had increased by 89% over the four years to 30 June 2023.

The ATO contacted thousands of taxpayers and agents to notify them of historical debts ‘on hold’ that would be offset against future refunds. These debts, often spanning years before 2017, ranged from cents to thousands of dollars. Many taxpayers were unaware of these debts because ‘on hold’ debts don’t appear in account balances, making them effectively invisible.

It was never our intention to cause frustration or concern. It’s important to us that taxpayers have trust in our tax system and our records.

For any taxpayer with a debt on hold, it is important to remember that just because the ATO might not be actively pursuing recovery of the debt, this doesn’t mean that it has been extinguished.

Small business tax debt blows out:

Out of the $50bn in collectible debt owing to the ATO, two thirds is owed by small business. As of July 2023, the ATO moved back to its ‘business as usual’ debt collection practices. For entities with debts above $100,000 that have not entered into debt repayment terms with the ATO, the debt will be disclosed to credit reporting agencies.

If your business has an outstanding tax debt, it is important to engage with the ATO about this debt. Hoping the problem just goes away will normally make things worse.

Please contact your Aintree Group adviser for further assistance.

This is general advice only and has not been prepared with your situation and needs in mind. For individual and personalised advice, we highly recommend that you seek out proper professional advice from your accountant.