Australian Tax Office reactivates debts placed on hold since 2020 for nearly 300,000 Australians

Australia’s Revenue Authority is pursuing nearly 300,000 taxpayers for debts they ran up three years ago – just as many families struggle to make ends meet.

The ATO reinstated some 290,000 tax debts that had been put on “hold” following the Black Summer of 2020 bushfires and during the Covid pandemic.

The devastating fires killed dozens of people and destroyed thousands of homes just months before the world entered a years-long lockdown due to the pandemic.

Indebted taxpayers were told about the bill in mid-2022, but many were taken by surprise.

If a taxpayer owes money to the ATO, the government branch will generally withdraw the funds owed from their annual tax refund, except in “very limited” cases of financial hardship.

However, those who owe more than the refund and submit the tax return themselves will have to pay the difference by November 21.

Unpaid debts start accruing daily interest from that date.

The ATO warned that “as some time may have passed since these debts were suspended, some taxpayers may not remember that they have a debt”.

“There could be up to 290,000 customers with ‘pending’ debt who could see refunds used to offset in 2023-24,” an ATO spokesperson said. News.com.au.

“It is important to recognize that we will only offset the value of the refund or credit, sometimes it is not economical for us to actively pursue taxpayers who owe us money. We call this “pending” debt.

“The debt remains legally due and payable.

“We are required by law to set off the credits against all tax debts owing, including ‘pending’ debts, except in very limited circumstances.”

More than 14,000 taxpayers paid “pending” debts worth $63.6 million this fiscal year 2022-2023.

The 2021-22 financial year saw $50 billion in refunds issued to 20 million Australians.

Debts have been suspended following the Black Summer of 2020 bushfires and the Covid pandemic (pictured, the remains of a Wingello house destroyed in the fires)

Mark Chapman, director of tax communications at H&R Block, said “the timing of the ATO decision is poor.”

“It will place an additional burden on the shoulders of hard-working taxpayers already struggling with higher interest rates and higher inflation,” he said.

Data from the Australian Bureau of Statistics earlier this month revealed that working families have been hit hardest by their budgets since 1999.

In July, 51% of Solve survey respondents said they would struggle to afford a major unexpected expense, up from just 41% in February.

To make matters worse, the difference between tax debt and refunds will be larger this year due to a series of ATO changes.

Many Australians’ tax refunds will be significantly lower this year, in part due to the end of the $1,500 low- and middle-income tax offset.

“There are a number of factors that can affect your final tax assessment,” said ATO Assistant Commissioner Tim Loh.

“Simply put, if you don’t get a refund, it just means you’ve paid the correct amount of tax throughout the year. If you receive an invoice, it may mean that you have not paid enough tax – this could be due to several reasons.

The ATO’s decision to restore debt amid a cost of living crisis has been criticized as ‘bad’ timing

For those who cannot pay their debt when due, the ATO offers several solutions.

Taxpayers can apply for a payment plan where the debt is paid in small installments rather than a lump sum payment.

Alternatively, debt owners can seek a Tax Debt Compromise – where the debt is reduced or eliminated in the event of extreme financial hardship, or a Deferred Payment which would see the debt recalculated and possibly reduced.