Nearly 300,000 Australians could see their tax return reduced or even wiped entirely after the tax office reactivated historic debts placed on hold in the wake of the 2020 bushfires and Covid pandemic.
The Australian Taxation Office (ATO) quietly reinstated some 290,000 debts in mid-2022, but AAP reports some taxpayers have been caught by surprise.
If a taxpayer owes money to the ATO, it is largely obligated by law to recoup those debts by reducing a person’s tax refund with only “very limited discretion” not to do so.
The ATO warned that “as some time may have passed since these debts were put on hold, some taxpayers may not remember they have a debt, and it may come as a surprise if a refund they were expecting is retained by the ATO to offset a debt on hold”.
“Our business-as-usual approach to collecting debts recommenced in June 2022,” an ATO spokesman told news.com.au.
“We ensure everyone pays their fair share of tax, to the benefit of all Australians. During the 2022-23 financial year, more than 14,000 clients paid their ‘on hold’ debts, recovering $63.6 million. Tax time 2022 saw around 20 million income tax lodgements and around $50 billion in refunds issued.”
He said the ATO proactively contacts clients who need to repay their debts to arrange payment.
“There may be up to 290,000 clients with debts ‘on hold’ who could see refunds used to offset in 2023-24,” he said.
“It is important to recognise that we will only offset the value of the refund or credit. Sometimes it is not economical for us to actively pursue taxpayers who owe us money. For example, if the amount owed is less than the costs incurred to contact taxpayers, or if the taxpayer is likely to be uncontactable. We refer to this as a debt ‘on hold’. The debt remains legally due and payable.”
He added, “We are required by law to offset credits against any tax debts owed, including debts ‘on hold’, except in very limited circumstances.”
Mark Chapman, director of tax communications at H&R Block, said while the ATO was legally mandated to collect these debts, “the timing of the ATO’s decision is poor”.
“This will impose one more burden on the shoulders of hard-working taxpayers already struggling with higher interest rates and higher inflation,” he said.
Mr Chapman said while the ATO had to reactivate these debts at some point, “it is difficult to justify the decision to push hard to collect these debts right now, in the middle of a cost-of-living crisis”.
“The ATO says that they will use tax refunds from the current year to offset the debt, which could well prove a very unwelcome move for many struggling taxpayers,” he said.
“Having said that, the ATO don’t seem to be implementing it properly — just yesterday, the ATO said that the system for offsetting debts against refunds had malfunctioned, and the office confirmed it was working to resolve the issue as quickly as possible. The ATO declined to say how many taxpayers were involved or the amount of the refunds, which is very poor form both in terms of the system error and the lack of communication around it.”
It comes as Australia battles an inflation and cost-of-living crisis, with new data from the Australian Bureau of Statistics earlier this month showing working households are battling the worst hit to their budget since 1999.
Last month, a Resolve survey found the majority of Australians — 51 per cent — said they would struggle to meet an unexpectedly significant expense, up from 41 per cent in February.
In June, research from the Salvation Army found that nearly two-thirds of vulnerable Australians couldn’t afford to pay their bills on time.
Many Australians have already complained about receiving a lower-than-expected refund or even a tax bill this year.
There are a number of reasons this may be the case, including different income and deductions, differences in the filed tax return and the pre-fill data, a spike in indexation on outstanding student loans, and the end of the $1500 low-and-middle income tax offset (LMITO).
However, a latent debt on its own can’t push a person’s tax refund into negative territory, meaning they would be forced to pay the money.
Earlier this month, the ATO again reminded taxpayers that they may receive a lower refund than expected or even a tax bill this year.
“There are a number of factors that can impact your final tax assessment,” ATO assistant commissioner Tim Loh said.
“In simple terms, if you don’t receive a refund, it just means that you’ve paid the correct amount of tax throughout the year. If you receive a bill, it may mean you didn’t pay enough tax — this can be for a number of reasons.”
When a person lodges their own tax return, the due date for payment is November 21. The due date may be later if using a registered tax agent.
“If you’ve received a bill and you can pay, you need to do so by the due date to avoid interest accruing,” Mr Loh said.
“If you’re experiencing financial difficulties, we have payment plan options available to support you, which you may be able to set up yourself on the ATO website.”
