The ATO Debt Dilemma

ATO Debt Dilemma - tax debt

In the closing months of last year, a myriad of taxpayers and their representatives were alerted by the Australian Taxation Office (ATO) regarding the existence of outstanding historical tax debts. Unfortunately, a vast number of them were completely unaware that such debts were pending.

The ATO’s ability to absolve a taxpayer from a tax debt is strictly confined to rare cases, such as when repayment would lead to severe financial distress. There are occasions, though, when the ATO chooses not to chase after a debt due to the cost outweighing the potential recovery. In such scenarios, the debt remains dormant on the taxpayer’s account, labelled “on hold”. It’s not resolved but can resurface later, for instance, when it’s taken from possible tax refunds the taxpayer might receive. The ATO, during the pandemic, halted such debt deductions, leaving those amounts unclaimed.

Fast forward to 2023, the Australian National Audit Office flagged the ATO’s practice of not offsetting debts as non-compliant with legal standards, irrespective of the debt’s origin. Consequently, by June 30, 2023, the ATO’s recoverable debt had witnessed a staggering 89% inflation over the prior four-year period.

In reaction, the ATO initiated contact with thousands of taxpayers and their representatives to inform them about these “on hold” historical debts, notifying that they would be applied against any upcoming tax refunds. These debts spanned several years, some dating back to before 2017, and varied widely in amounts. For a considerable number of taxpayers, this was the first indication they received about any such debts, given that “on hold” debts are marked as “inactive” and thus don’t appear in standard account summaries. As a result, taxpayers were unknowingly accumulating debt, which remained unrecorded due to its “inactive” status.

In a recent statement, the ATO said: “The ATO has paused 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.”

Taxpayers with suspended debts should bear in mind that the ATO’s lack of immediate enforcement does not imply that the debt has been eliminated.

Small business tax debt blows out

Small businesses account for two-thirds of the staggering $50 billion in recoverable debt owed to the ATO. As we entered July 2023, the ATO reverted to standard debt recovery operations. Notably, businesses with debts surpassing $100,000, who haven’t arranged repayment plans with the ATO, could find their debts reported to credit agencies.

For businesses grappling with outstanding tax debts, proactive engagement with the ATO is crucial. Ignoring the issue in hopes it will dissipate is often a recipe for exacerbated problems.

Posted in

Heaney Business Group

Our purpose is to build healthy long-lasting relationships with our clients, staff and within the local community. We work closely with our clients to help them achieve their dreams and goals.

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top
Call Now Button