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ATO pauses “debts on hold” awareness campaign


The ATO has apologised for any “unnecessary distress” caused to taxpayers with its recent awareness campaign around tax debts that were previously put on hold. Recently, the ATO had written to some small businesses with debts of more than $50 on hold to inform them that offsetting of debts will apply. It notes that the purpose of the letters was to ensure that taxpayers had full visibility of their existing debts with the ATO; however, it will pause the campaign to allow a review into its overall approach to debts on hold before progressing any further.

In response to community feedback and perhaps to negative commentary in the media, the ATO has announced it is pausing its “awareness campaign around tax debts on hold”. As foreshadowed in an earlier speech by an Assistant Commissioner, the ATO had recommenced pursuing small business debts that were previously placed on hold. Small businesses that have not received a letter thus far from the ATO should therefore keep in mind that they may still have a debt on hold. 

Many small business debts were put on hold entirely by the ATO (meaning debt amounts were not deducted from tax refunds or credits) during the COVID-19 pandemic’s rapidly changing business conditions, with the intention of giving these businesses a chance to recover and rebuild. The Australian National Audit Office reviewed this approach and found it to be inconsistent with the law, and the ATO then received clear advice that by law, any credits or refunds that a small business becomes entitled to must be used to pay off (offset) its tax debt. This action is generally automatic, and should apply even where the ATO is not actively pursuing the debt (such as was the case during the height of the pandemic).

It’s important to be aware that there are very limited circumstances where the ATO has the discretion not to offset a debt and to instead issue a refund. These are: the amount owing is due but not yet payable; the amount owing is under a payment arrangement and the taxpayer is complying with that arrangement; the ATO has agreed to defer recovery action; and/or the amount is to be offset against a director penalty debt. 

Due to the legal requirement for offsetting, small business with debts on hold may now find that any credits or refunds from their lodged tax returns or BASs may be less than expected, or may even be reduced to zero. After the offsetting, any balance payable relating to the business’s debt on hold will continue to remain on hold until it is paid in full. Small businesses do not need to actively do anything in relation to offsetting of debts, and will only need to contact the ATO if they would like to make payments towards their debt on hold or make a request for the ATO not to offset. 

The easiest way to check whether a debt on hold exists is through ATO online services. Small businesses may need to download a file with all transactions on the applicable account to check, as debts on hold will not show as an outstanding balance on the account (because of their “on hold” status). Debts on hold can be found by searching the file for “non-pursuit” and any offsetting of a credit or refund can be found by searching for “offset”. 

Small businesses should also be aware that debts on hold can be reactivated at any time where the ATO believes that there is capacity for the business to pay. However, businesses will be notified of such a move, usually in writing. Again, reactivation of a debt can be checked through ATO online services – a reactivated debt will show as an outstanding balance on the relevant account, with the transaction labelled either “re-raise of non-pursuit”, “partial re-raise of non-pursuit”, or “cancellation of non-pursuit”. 

While the ATO acknowledges that its approach to communicating about debts on hold caused “unnecessary distress”, particularly to those taxpayers whose debts were incurred several years ago, it has verified that all debts exist and that all taxpayers were previously informed when the debt was originally incurred through their notice of assessment. 

The ATO notes that the purpose of the letters it sent was to ensure that taxpayers had full visibility of their existing debts with the ATO. Nonetheless, it will now pause the campaign to allow a review into its overall approach to debts on hold before progressing any further. Presumably it is only referring to pausing the campaign of informing taxpayers and not pausing the offsetting itself, as that process is required by law, is automatic, and the debts have been confirmed to exist.