TRANSCRIPT
In 2020, during the Black Summer Bushfires and the COVID-19 pandemic, the Australian Tax Office put a hold on collecting historical debts.
But since the middle of 2022, the ATO has quietly reactivated those debts.
It means 290,000 Australians could receive a reduced tax return this year as the ATO attempts to recoup the money owed to them.
McCann Financial Group director Phil McCann says the ATO is legally required to pursue debts, but more notice should be given to people who owe money.
"The Tax Office is doing the government's bidding in terms of collecting revenue and squaring the books. It's very much an agnostic job they do, and they're following government policy. But I do think that the policy today is a bit rough without notice. But I think that that can be three, four, and sometimes five years ago, those debts came to life. So yes, it is a bit I think unreasonable to simply claw them back from a refund that was being expected with no warning."
The ATO says they have written directly to some taxpayers or their registered tax agents notifying them of their debt on hold, and to remind them that the ATO has recommenced offsetting any credits and refunds against their on-hold debts.
But Mr McCann says the ATO's communication has been poor and people should be notified well in advance.
"Communications and transparency are the two things needed here. I have seen letters - but some not all - and that has been an imperfect process of communicating to each of those let's just say 290,000 Australians with a tax debt that's resurfaced or been resuscitated. Some sort of notice period, call it three months or a figure - a period of a warning that it's happening - would be, I think, reasonable."
Head of policy and advocacy at accounting organisation CPA Australia Elinor Kasapidis agrees the ATO should be more transparent in showing people what they owe.
"The ATO should explain why it isn't visible. It is a poor user experience to have to go into something and look for it. Again, going forward we would expect these things to be a lot more transparent. But with any IT project, I'm sure there's a reason. So once again, it's just important though, it's not an excuse to ignore it just because you can't find it straight away. If you do think you have a tax debt, get some advice or speak to the ATO."
She says while the ATO may have taken some people's tax returns, they are not necessarily issuing debt collection notices for the historical debts.
"Many Australians are doing it tough and we are hearing from members that clients are really upset when the refunds have gone. What is important to remember though is the ATO is not issuing debt collection notices for the outstanding debts. They are just taking the refunds and also remitting general interest charge. So if taxpayers do have a problem paying any debts they should also look to the ATO to and speak to them about a payment arrangement."
The ATO has defended its actions, saying it has the authority to collect debts by automatically reducing a person's tax refund and that it has very limited discretion not to.
An ATO spokesperson said in a statement that they expect more than 69,000 clients will repay their 'on hold' debts, at an estimated value of $274 million.
But they say 290,000 people have a debt, and collectively they are worth one-point-two billion dollars in total.
Treasurer Jim Chalmers has also defended the Tax Office's practices.
"Obviously the Tax Office does the best job it can in ensuring that people are complying with the tax system by trying to provide as much information as they can, as the steps are taken. I'm obviously not going to criticise the important work that the ATO does. I know speaking to the Commissioner and others in the ATO that when they conduct this necessary work, they try to do it in the most sensitive way that they can, and I expect that to continue."
The change to the historical debt collection policy comes at the same time as the low and middle-income earner tax offset ends, which will also reduce thousands of people's returns this year.
Mr McCann says many households and businesses would have been relying on a tax return to ease cost-of-living pressures.
"Especially in small business. But mums and dads, individual taxpayers as well, it's a cash flow juggling act. For example, a small business might have purchased a large piece of equipment and be expecting a GST refund, which can be 10s of 1000s - and that can be a pretty important part of a small business cash flow, especially for a startup. And that will be, as I say, possibly taken away with this process. So yes, it will affect Australians. It would affect family budgets."
