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ATO backflips on tax debt letters after they cause ‘unnecessary distress’

The ATO said it would review its overall approach to debts on hold following backlash.

The Australian Taxation Office (ATO) has paused a letter campaign that told taxpayers they had historical debts “on hold” following community backlash and comparisons to the ill-fated Robodebt scheme.

Thousands of Aussies recently received letters from the ATO telling them they had debts “on hold”, which would be taken from future tax refunds. The amount owing ranged from a few cents to thousands of dollars and, in some cases, the debts were decades old.

The ATO said it would review its overall approach on how it communicated about the debts, but noted it did not have the power to forgive or waive the debts.

Composite image of ATO logo and Australian office workers.
The ATO has paused its debt-recovery letter campaign, after thousands of taxpayers were told they owed historic debts. (Source: ATO/AAP)

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“The purpose of the letters was to ensure people had full visibility of their existing debts with the ATO, where collection had been put on hold,” the ATO said.

“These debts relate to tax returns for past income years. The letters provided a reminder about existing debts but did not require payment.”

The ATO said it had verified that all debts existed and that all taxpayers were previously informed when the debt was originally incurred.

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“Taxpayers can check whether they have a debt on hold by calling us,” the ATO said. “However, we accept that our communication approach caused unnecessary distress – especially for those debts incurred several years ago.”

The ATO said no further action was needed by anyone who received a letter, but people could contact the ATO for further information about their debt.

What are debts on hold?

Tax debts on hold are debts the ATO is not taking active steps to recover, but remain payable.

The ATO is able to recoup debts owed by automatically reducing a person’s tax refund, with “very limited circumstances” in which it has the discretion not to do so.

During COVID-19, the ATO paused offsetting debts on hold, meaning they weren’t deducted from any refunds or credits. It then resumed its “business-as-usual” approach to debt collection in June 2022.

An ATO spokesperson previously told Yahoo Finance that, during the 2022-23 financial year, more than 14,000 taxpayers paid their ‘on hold’ debts, totalling $63.6 million.

‘Eerily similar to Robodebt’

Independent Tasmanian MP Andrew Wilkie said the letters were “eerily similar to the Centrelink Robodebt scandal”.

“The Australian Taxation Office has recently issued tax agents and taxpayers across the country with notices about the collection of clients’ historic debts without any explanation or evidence of how the debt was raised, what the debt relates to or how old the debt is,” Wilkie said.

“A government agency issuing debt notices without any explanation and expecting unquestioning compliance sounds suspiciously familiar.”

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