Months after the Australian Taxation Office (ATO) apologised for the distress caused by the letter campaign that involved informing small businesses that their on-hold historical tax debts will be recovered, the Federal government has announced in the 2024 Federal Budget a pause on using refunds to offset tax debts dating prior to 1 January 2017.

PS LA 2021/2, that was released in April 2021, extended the powers of the Commissioner to retain refunds to target illegal phoenix activity where taxpayers held off on lodging tax returns that result in a tax liability, but lodged a BAS to obtain a credit where they would otherwise not be entitled to.

As per s 8AAZL of the Tax Administration Act, the Commissioner is required to apply refunds in the running balance account (RBA) to offset current or anticipated RBA and non-RBA tax debts.

Old tax debts put on hold

The proposed measure puts a hold on the Commissioner allocating surpluses to outstanding RBA and non-RBA tax debts, dating prior to 1 January 2017. Although, not enough information has been provided in the budget papers, this measure may also put a hold (but not cancel) the Robotax scheme that was launched by the ATO to collect $15 billion in outstanding tax debts.

This discretion will apply to individuals, small businesses and not-for-profits, and will maintain the Commissioner’s current administrative approach.

Next steps

This measure has been announced as part of the cost-of-living relief package by the Labor government as many individuals and businesses rely on their refunds to tackle cash flow pressures.

Individuals, small businesses and not-for-profits can continue to file their lodgments without having their refunds offset against tax debts that date back more than 5 years, records of which are not required to be kept by them as per law.

Contact us

Please feel free to contact our office should you have any queries in relation to these announcements.

The information (including taxation) contained within this document is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. DLA Partners strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances.