Tax Refunds Wiped As ATO Reactivates Old Debts

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.

“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.”