Surprising reason nearly 300,000 Aussies could get lower tax refunds

The ATO has reactivated debts it had placed on hold.

Composite image of Australian money and person doing tax return.
The ATO can offset tax refunds against any tax debts owed. (Source: Getty)

Nearly 300,000 Aussies could receive smaller tax refunds this year, or nothing at all, after the Australian Taxation Office (ATO) reactivated debts it had put on hold.

The ATO is able to recoup debts owed by automatically reducing a person’s tax refund, including debts ‘on hold’. The ATO says there are “very limited circumstances” in which it has the discretion not to do so, including serious financial hardship.

Historic debts were put on hold during the 2020 Black Summer bushfires and the COVID-19 pandemic. But, according to an exclusive report by SBS News, they were quietly reactivated in mid-2022.


An ATO spokesperson said the move, which is legal, could impact up to 290,000 Aussies this financial year and some may be taken by surprise.

"As some time may have passed since these debts were put on hold, some taxpayers may not remember they have a debt, and it may come as a surprise if a refund they were expecting is retained by the ATO to offset a debt on hold,” the ATO spokesperson said.

How do I know if I am impacted?

The ATO said it proactively contacted clients who needed to repay their debts to arrange payment.

“The ATO has written directly to 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 debts ‘on hold’,” an ATO spokesperson said in a statement to Yahoo Finance.

“Awareness letters to taxpayers have been issued via the post. If we suspect a client may not be aware they have a debt ‘on hold’ we may try to contact prior to offsetting.”

When a debt is reactivated, the ATO says it will show as an outstanding balance on your statement of account and in ATO online services.

“During the 2022-23 financial year, more than 14,000 clients paid their ‘on hold’ debts, recovering $63.6 million. Tax Time 2022 saw around 20 million income tax lodgements and around $50 billion in refunds issued,” the spokesperson said.

Aussies to get smaller refunds

The ATO previously said it expected fewer people would receive a tax refund or may receive smaller refunds than they were expecting this year.

This is partly due to the low and middle income tax offset (LMITO) coming to an end on June 30, 2022.

Nicknamed the “lamington”, it previously gave people earning up to $126,000 per year a tax break of up to $1,500, depending on their taxable income.

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