ATO pauses debts on hold campaign

In response to community feedback and perhaps 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. Recently, the ATO had written to some small businesses with debts on hold greater than $50 to inform them that offsetting of debts would apply. Small businesses that have not received a letter thus far from the ATO were advised that they may still have a debt on hold but have not yet been contacted.

Many small business debts were put on hold entirely by the ATO (ie debts were not deducted from tax refunds or credits) during the COVID-19 pandemic which rapidly changed business conditions and was a means to give these businesses a chance to recover and rebuild. This approach was reviewed by the Australian National Audit Office (ANAO) and found to be inconsistent with the law. The ATO then received clear advice that while these debts were no longer actively pursued, by law, any credits or refunds that the small business becomes entitled to must be used to offset (or pay off) the debt, and this action is generally automatic. Due to this offsetting, small business with debts on hold may find that any credits or refunds from lodged tax returns or BASs may be less than expected or even be zero. After the offsetting, any balance payable relating to the 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 the debt on hold or make a request for the ATO not to offset. However, small businesses should be aware that there are only very limited circumstances in which the Commissioner has the discretion not to offset and 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.

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 (ie it has been made inactive but remains on the account). 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 “offset”.

Small businesses should also be aware that debts on hold can be reactivated at any time where it 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, which will now show an outstanding balance on the relevant account, with the transaction being labelled either re-raise of non-pursuit, partial re-raise of non-pursuit, or cancellation of non-pursuit. While the ATO acknowledges that its communication approach to 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 was to ensure that taxpayers had full visibility of their existing debts with the ATO, nonetheless, it will 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 the offsetting itself, as that process is required by law, is automatic, and the debts have been confirmed to exist.

Speak to one of our accountants if you have any questions about the changes in tax for 2023.