In response to community feedback and media commentary, the ATO has announced it is pausing its awareness campaign relating to small business tax debts that were previously placed on hold. This follows earlier statements from an Assistant Commissioner that the ATO had recommenced action around these debts, particularly where offsetting of credits and refunds applies.
Recently, the ATO wrote to some small businesses with debts on hold greater than $50 to inform them that offsetting would occur. Businesses that have not received a letter may still have a debt on hold but have not yet been contacted.
Background on debts placed on hold during COVID-19
During the COVID-19 pandemic, many small business tax debts were placed entirely on hold by the ATO. This meant debts were not actively pursued and were not deducted from refunds or credits, giving businesses time to recover from rapidly changing conditions.
However, a subsequent review by the Australian National Audit Office found this approach to be inconsistent with the law. The ATO then received clear advice that while debts could remain inactive, any credits or refunds a business becomes entitled to must, by law, be offset against existing debts. This offsetting process is generally automatic.
How offsetting works in practice
Because of offsetting, small businesses with debts on hold may find that:
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tax refunds or BAS credits are reduced, or
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refunds expected to be received are reduced to zero
After offsetting occurs, any remaining balance of the debt will continue to stay on hold until it is paid in full or reactivated.
Businesses do not need to take any action for offsetting to occur. However, they can contact the ATO if they wish to make payments towards the debt or request that the ATO not apply an offset.
When the ATO may not offset a refund
There are very limited circumstances where the Commissioner has discretion not to offset a refund. These include where:
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the amount owing is due but not yet payable
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the amount is under a payment arrangement and the taxpayer is complying
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the ATO has agreed to defer recovery action
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the amount is to be offset against a director penalty debt
Outside these situations, refunds and credits will generally be applied to reduce the debt.
How to check if you have a debt on hold
The easiest way to check for a debt on hold is through ATO online services. In many cases, businesses may need to download a full transaction history for the relevant account, as debts on hold do not appear as an outstanding balance.
To identify activity:
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search for the term “non-pursuit” to locate debts on hold
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search for the term “offset” to see where credits or refunds have been applied
Reactivation of debts on hold
Debts on hold can be reactivated at any time if the ATO believes the business has capacity to pay. Where this occurs, the business will usually be notified in writing.
Once reactivated, the debt will again appear as an outstanding balance in ATO online services, with transaction descriptions such as:
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re-raise of non-pursuit
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partial re-raise of non-pursuit
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cancellation of non-pursuit
What the pause actually means
The ATO has acknowledged that its communication approach caused unnecessary distress, particularly for businesses with older debts. It has confirmed that all debts are valid and that taxpayers were originally notified when the debts arose through notices of assessment.
The pause applies to the awareness campaign itself, allowing the ATO to review how it communicates about debts on hold. Importantly, the offsetting of refunds and credits is not paused, as this process is required by law and occurs automatically.
Key takeaway for small businesses
Small businesses should be aware that debts on hold still exist and can affect refunds through automatic offsetting. Regularly checking ATO online services, understanding how offsets work, and seeking advice early can help avoid surprises and manage cash flow more effectively.
Speak to one of our accountants if you have any questions about the changes in tax for 2023.
