Late last year, the Australian Taxation Office (ATO) caught thousands of taxpayers and tax agents off guard by informing them of outstanding historical tax debts. This came as a shock to many, who were unaware of these debts in the first place.
What We Know
The ATO has extremely limited grounds upon which they can release taxpayers from debts, such as cases involving serious financial hardship. However, in certain situations, the ATO may choose not to pursue a debt due where it is not economical. These debts are temporarily suspended but remain active, withg potential to resurface in the future. For instance, they might be used to offset future tax refunds. During the COVID pandemic, the ATO ceased offsetting debts, leading to unnoticed balances.
In 2023, the Australian National Audit Office informed the ATO that excluding debts from being offset was legally inconsistent, regardless of when they originated. By then, the ATO’s collectible debt had surged by 89% over four years.
ATO’s Response
The ATO responded by notifying thousands of taxpayers and their representatives about long-dormant debts, slated to offset future refunds. These historical debts spanned several years and ranged from trivial mere cents to substantial amounts in the thousands. This notification came as a shock to many, since inactive debts don’t reflect in account balances, remaining effectively invisible.
In a recent statement, the ATO has expressed its intention to “pause all action in relation to debts placed on hold prior to 2017 whilst we review and develop a pragmatic and sensible way forward that takes into account concerns raised by the community.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.”
What Should You Do Now?
If you’ve got 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 disappeared.
This is particularly crucial for small businesses, which account for two-thirds of the $50 billion collectible debt owed to the ATO. As of July 2023, the ATO resumed its standard debt collection practices, disclosing debts exceeding $100,000 to credit agencies if no repayment arrangements are made.
For businesses with outstanding tax debts, proactive engagement with the ATO is key. Ignoring the issue will only exacerbate the situation rather than resolve it.
Don’t get caught off guard by historical debt. If you think you could be subject to outstanding debts, get in touch with one of our expert accountants or advisors and find out how we can help manage your debt and put your mind at ease.
While you’re here, be sure to follow our socials so you never miss a thing! Stay up-to-date with the latest industry news, tips, and valuable insights as they become available.
The material and contents provided in this publication are general and informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.
