ATO Guidance Update: Debt Relief & Waivers

The ATO has recently updated its Law Administration Practice Statement on debt relief, waivers and non-pursuit of debt. Specifically, the Practice Statement provides guidance on the Commissioner’s discretion to not pursue the recovery of tax debts, and the ATO’s ability to release individual taxpayers from their obligation to pay certain tax-related liabilities.

Generally, the ATO will not pursue a debt if they are satisfied that the debt is uneconomic or irrecoverable at law. There are many factors which determine whether debts are uneconomical to pursue, including but not limited to:

• the anticipated cost of future recovery likely to exceed the amount of the debt;
• the age of the debt;
• the type of debt involved (i.e. super guarantee charge debts are more likely to be pursued);
• the taxpayer cannot be located (the debt may be re-raised when the taxpayer is located); and
• the asset position of the taxpayer.

The ATO’s Discretion

In certain instances, such as where a taxpayer has a significant history of non-compliance or where there are public interest considerations, the ATO may pursue a debt even though it is uneconomical.

The Practice Statement also details the tax liabilities that taxpayers can be fully released from in cases of serious hardship. It also details application process to obtain the release. Serious hardship is given its ordinary meaning in this context. According to the ATO, serious hardship exists where the payment of a tax liability would result in a person being left without the means to afford basics such as food, clothing, medical supplies, accommodation or reasonable education.

Assessment of a Taxpayer’s Capacity

The income/outgoings and the assets/liabilities tests are quite straightforward. The former assesses the taxpayer’s capacity to meet their tax liabilities from their current income, taking into account household income and expenditure. The latter assesses the taxpayer’s equity in, or access to, assets which may be indicative of their capacity to pay, including residential property, motor vehicle, life insurance or annuity entitlements, collections, furniture and household goods, tools of trade, etc.

It is the category “other relevant factors” that has recently been updated. It now states that when deciding whether release should be granted, the ATO should take into consideration the facts of the case and have regard to the taxpayer’s particular circumstances. In addition, the examples of the factors the ATO may consider in arriving at that decision have also been reordered and reworded in the recent update.

Applying all 3 tests will enable the ATO to decide whether serious hardship exists and to what extent. It may be the case that while hardship exists, it does not warrant a full release of a tax debt. In this case, a partial release may be applied. Nevertheless, any taxpayers wishing to apply for release of debts based on serious hardship should revisit this updated Practice Statement.

Need Help with an ATO Debt?

With the soaring rate of inflation, increasing costs and challenging economic conditions, tax debts may be ignored as many taxpayers deal with more immediate bills. However, there are painless ways to deal with ATO debts, either through a payment plan or a full/partial debt release. Alexander Bright is a trusted accounting firm that can provide assistance with ATO debts, income tax returns and other income tax services. Contact our accountants in Melbourne today for more information.