In an unexpected move, the Australian Tax Office (ATO) has reportedly reactivated historic debts that were placed on hold during the pandemic and 2020 bushfires. About 300,000 affected Australians will consequently receive zero or reduced tax refunds from their latest filings.
An ATO spokesperson confirmed that the value of on-hold debts is $1.2 billion. The tax authority expects over 69,000 taxpayers to repay debts worth about $274 million.
The reactivation of the debts was undertaken in mid-2022 when the ATO decided to resume debt collection efforts. For many taxpayers who may have forgotten they owed these debts, it is an unwelcome and unexpected development that means they may not receive any refunds.
According to the ATO, over 14,000 taxpayers with on-hold debts made payments in the 2022 to 2023 financial year which came to $63.6 million. The tax authority also confirmed that it did proactively contact taxpayers with debts to arrange for payment. The ATO has also said that it is required by law to offset credits against any tax debts owed, including those on hold.
However, despite the legality of these actions, there has been some criticism against the move. H&R Block director of tax communications, Mark Chapman, said that the timing of the ATO on this matter was poor as it placed an additional burden on hardworking taxpayers at a time when they were grappling with high inflation and high-interest rates.
Phil McCann of the McCann Financial Group is also advising that the ATO should give taxpayers more notice on the matter. He is calling for greater communication and transparency. McCann also pointed out that many households and businesses were counting on the refunds to help ease cost-of-living pressures.
Elinor Kasapidis, head of policy and advocacy at CPA Australia, is also requesting the ATO to be more transparent and for taxpayers to be more proactive in making payment arrangements if they have any debts.
While accounting professionals were duly notified of the ATO’s intentions to reactivate these debts, the biggest challenge lies with taxpayers who do not use tax agents. An estimated 40% of taxpayers do not use accountants or tax agents. Many are expected to be blindsided by the impact on their refunds if they did not receive written notifications from the ATO
There are also reports that the ATO’s offsetting system may have malfunctioned, allowing some people with debts on hold to receive refunds without any effect on their outstanding debts. Though the ATO has declined to confirm how many taxpayers may have been affected, it is said to be working to resolve the issue.
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