ATO surprises taxpayers and accountants by reviving tax debts under $1

The Australian Taxation Office (ATO) has unexpectedly revitalised thousands of dormant tax debts, surprising small businesses and frustrating the tax agents tasked with settling outstanding balances of as little as 31 cents.

As first reported by Accountants Daily, the ATO last week sent letters to taxpayers advising them that outstanding debts it considers ‘on hold’ are valid for collection.

The ATO places debts ‘on hold’ when it determines actively chasing them is “not an economical option”.

Those amounts do not appear as outstanding balances on each taxpayer’s online account; however, they technically remain payable, and can be repaid through tax returns or credits accrued by the taxpayer.

The ATO has taken a largely hands-off approach to those ‘on hold’ debts in recent years, owing to pandemic-era leniency shown towards taxpayers, and its focus on the billions of dollars of actively collectable debt.

That appeared to change last week, when the ATO reminded taxpayers their slumbering debts — some of them years old — are liable for collection through tax returns or credits.

In a statement provided to SmartCompany, an ATO spokesperson said it expected more than 69,000 clients to have their 2023-2024 tax refund offset by a debt on hold.

The estimated value of those debts is $274 million.

“The ATO has no discretion under the law to write these amounts off and must offset any future refund against these amounts no matter how small,” the ATO spokesperson said.

“It would have cost more to send the letter out”: tax agent

Although the tax office has effectively revitalised hundreds of millions of dollars in dormant debts, some small businesses are now being alerted to minuscule individual liabilities.

Stacey Price, a registered BAS agent and founder of Healthy Business Finances, told SmartCompany one of her clients was advised of an outstanding tax debt totalling $2.

Another agent was advised of a tax debt totalling 31 cents, she says.

“We said it would have cost more to send the letter out than for the client to pay the bill,” Price told SmartCompany.

While the individual debts may appear frivolous at first glance, tax agents say the letters are cause for genuine concern.

An outstanding tax debt of even a few cents may cause problems for a small business seeking a debt repayment plan with the ATO, explains Price.

Furthermore, even tiny debts may be eligible for interest charges, meaning a debt of only a few cents could grow over time.

“We’ve had some clients go, ‘I’m just gonna ignore it’,” Price says.

“And I guess my concern with that is, the ATO will then charge more interest on late payments, if the ATO believes that should be paid.”

Not every business will be willing to pay an accountant to investigate small resurfaced debts.

But for clients who do want an explanation, tax agents are likely to spend hours trying to understand the debt and how it arose.

Some of the debts may involve companies which have since collapsed, adds Price, making it even harder to determine how and when those debts arose.

Concerns over debt visibility in ATO Online portal

The letters came as a surprise to tax agents because of the way the ATO presents outstanding debts to tax agents.

Because the ‘on hold’ debts do not appear alongside other active debts on each taxpayer’s account, they are only visible to tax agents from the point they are reinstated, Price explains.

“So we can look at [a client’s account] for 10 years, and it looks like they don’t owe anything,” she says.

“As soon as [the ATO] reinstates some random thing from 10 years ago, it appears on their account.”

Price also fears recent letters advising taxpayers of their outstanding debts may cause them to lose trust in their tax agents, “because they think that we just haven’t told them for 10 years, which is not the case”.

Echoing those concerns, the ATO says it is now taking steps to increase the visibility of debts ‘on hold’.

“To improve the experience for our clients, we are making changes to our systems so that debts on hold will be included in a client’s account balance,” the spokesperson confirmed.

“This system change will see current debts on hold become visible to clients and their agents between April and June 2024.”

Tax agents can also expect further awareness letters to remind clients of their debts ‘on hold’, and how to view those otherwise hidden debts through the ATO’s online portal.

For now, the ordeal has left tax agents bemused and facing extra legwork to chase down the recently revitalised debts.

“I understand people potentially need to pay, and I’m not disputing that,” Price says.

“I just think, ‘wow, are there bigger things that we need to think about?'”