The ATO can “write off” a tax debt if it decides that it is not commercially viable to pursue the debt. However, that doesn’t mean that the debt is gone forever and the ATO can re-raise the debt in the future.
So why does this happen?
ATO determines a debt is not viable to pursue
The ATO can determine that a tax debt is not viable to pursue, given the costs associated with pursuing it and the prospects of recovery. It is unlikely that the ATO will do this for larger tax debts or if the ATO thinks a taxpayer has been involved in misconduct or tax avoidance.
The ATO will possibly “write off” a tax debt if they determine an individual or a company really has no way to pay the tax debt, as they have limited income and/or assets. The ATO will make this decision based on information available to it including in taxpayers’ tax returns and through data matching for a taxpayer.
The ATO may “write off” a tax debt after it has taken some form of recovery action, such as issuing Garnishee Notices or Director Penalty Notices, but before it has commenced more costly types of recovery action such as liquidation or bankruptcy proceedings.When the ATO “writes off” a taxpayer’s tax debt the debt may no longer appear on the taxpayer’s accountant’s tax portal or on statements issued to the taxpayer by the ATO.
ATO can re-raise tax debts
But just because the ATO has “written off” the debt doesn’t mean it is gone for good.
The ATO can re-raise a “written off” tax debt at any time in the future. Once the debt is re-raised the ATO will also add on interest and penalties, meaning the debt may significantly increase. The ATO will generally do this if they identify that a taxpayer has acquired assets, or they are earning an income level which allows them to pay the tax debt owed.
This can come as quite a surprise to people as they may have thought the tax debt was gone for good.
It will also come as a surprise when the ATO starts taking further recovery action as they now think the debt is commercially viable to pursue. Recovery action may include issuing general Garnishee Notices, Garnishee Notices to a person’s employer, or liquidation or bankruptcy proceedings.
What should taxpayers do?
Taxpayers with tax debts need to deal with their problems when they arise. Whilst having an unpayable tax debt can cause problems, dealing with the issue when it arises will cause less problems than dealing with it in the future when the debt has increased and possibly a taxpayer has acquired assets or is earning income which may be at risk of ATO recovery action.
Therefore, taxpayers with tax debts they cannot pay should still get advice as to their circumstances and any options available.
Contact us for assistance
If you or your business are having difficulties paying your tax debts, the professionals at TAX DEBT SOLVED can help with a free, no-obligation consultation, contact us here.