Late last year, the ATO advised thousands of taxpayers and their agents that they had an outstanding historical tax debt. The only problem was that many taxpayers and their agents didn’t know that the tax debt existed.

The ATO can only release a taxpayer from a tax debt in limited circumstances (e.g., where payment would result in serious hardship). However, sometimes the ATO will decide not to pursue a debt because it isn’t economical to do so. In these cases, the debt is placed “on hold”, but it isn’t eliminated and can be re-raised on the taxpayer’s account in future.

In 2023, the Australian National Audit Office suggested the ATO that excluding debt from being offset was not consistent with the law, irrespective of when the debt arose. And by this stage, the ATO’s collectible debt had maximised by 89% over the four years to 30 June 2023.

The ATO responded by contacting thousands of taxpayers and their agents suggesting historical debts that were “on hold” and suggesting that the debt would be offset against any future refunds. These historical debts were often across many years, some before 2017, and ranged from a few cents to thousands of dollars. For many, the notification from the ATO was the first idea they had of the debt, because debts on hold are not shown in account balances as they were “inactive”.

In a recent statement, the ATO said that they have paused all action related to debts placed on hold before 2017 whilst they review and develop a sensible way that considers concerns raised by the community. The ATO said that it was never their intention to cause frustration. It’s important for them that taxpayers have trust in their tax system and our records.” For any taxpayer with on-hold debt, it is crucial to remember that just because the ATO might not be actively pursuing recovery of the debt, this doesn’t mean that it has been eliminated.

Small Business Tax Debt Blows Out

Small businesses account for two-thirds of the $50 billion in collectable debt outstanding to the ATO. As of July 2023, the ATO resumed its “business as usual” debt-collecting activities. Entities having debts more than $100,000 that have not signed into debt repayment agreements with the ATO will have their debt disclosed to credit reporting agencies. If your company has an outstanding tax liability, it is crucial to communicate with the ATO about it.

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