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”. It notes that the purpose of the letters it sent was to ensure that taxpayers had full visibility of their existing tax debts. Nonetheless, it will undertake a review into its overall approach to debts on hold before progressing any further.

If your small business has tax amounts owing to the ATO and hasn’t received a letter thus far, keep in mind that you 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).

Due to the legal requirement for offsetting, small businesses with debts on hold may now find that any credits or refunds from 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 your business’s debt on hold will remain on hold until it is paid in full.

You don’t need to actively do anything in relation to offsetting of debts, and you will only need to contact the ATO if you’d like to make payments towards your debt on hold or make a request for the ATO not to offset.

Tip: There are very limited circumstances where the ATO has the discretion not to offset a debt and to instead issue a refund. Contact us to find out more.

The easiest way to check whether a debt on hold exists is through ATO online services. You 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).

It’s important to be aware that debts on hold can be reactivated at any time where the ATO believes that there’s capacity for your business to pay. You will be notified if this is going to happen, usually in writing. A reactivated debt will show as an outstanding balance on the relevant account in ATO online services. While the ATO acknowledges that its approach to communicating about debts on hold caused “unnecessary distress”, particularly to 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.