Can the ATO re-raise a tax debt that it has previously written off?

The ATO can write off a tax debt if it decides that it would not be economical to pursue the debt. However, the ATO can re-raise this debt down the track.

Watch this video to find out more about this and what to do if this has happened to you.

Video: Can the ATO re-raise a tax debt that it has previously written off?

TRANSCRIPT

Hi, it’s Catriona from Hartigan Law. In this video, I’m talking about the Tax Office’s ability to re-raise a tax debt that it’s previously written off, and what you can do if this has happened to you.

So what often happens is someone will owe a tax debt and they’ve not really engaged with the Tax Office for a while about that debt. So the Tax Office looks at its options.

Maybe it looks at issuing a garnishee notice, or maybe it does issue a garnishee notice, but it doesn’t collect anything under it. Or it might look at taking steps towards bankruptcy.

In the process of doing this, the Tax Office realizes that the person really has no way to pay the tax debt. They might have no income, they might have no assets.

So the Tax Office can decide that ‘look, it’s really going to take more time and effort to pursue this person than it’s going to be worth, because the person can’t pay the debt at all’.

So the Tax Office can write off that debt as being non-economical to pursue. Really, what that means is, the Tax Office is just saying, ‘for now, we’re not going to try and collect that tax debt‘. It’s not really written off in the sense that you or I might write off a debt.

Then, what can happen is, a couple of years down the track, the person gets back on track, they might get a job, they might start a business, and they lodge a tax return that shows the Tax Office that they’re now earning money. The Tax Office, on seeing that, can decide to re-raise that old debt that it had written off, because it decides, ‘okay, well now this person has a way of paying off that old tax debt, so we want to get paid’.

This can come as quite a surprise to people.

The other part that comes as quite a surprise is that, when the Tax Office re-raises the tax debt, it also imposes general interest charge for that whole time that the tax debt was written off, even though the Tax Office wasn’t pursuing it during that time. That can seem quite unfair.

It can be quite a big amount of interest, depending on how much of the tax debt was originally written off, and how long it’s been since that was done.

If this has happened to you, there’s a few things you should know.

The first thing is that it is perfectly legal for the Tax Office to do this, and it does it quite often.

The second thing is that if it has happened to you, you shouldn’t ignore it. You should try and negotiate a plan with the Tax Office to pay that amount off over time.

The third thing is that it is possible to have that general interest charge remitted.

It is quite a process to ask the Tax Office to remit the general interest charge. You have to outline the reasons why the tax debt got to the point it did, what you’ve done to try and get it under control. Basically, you have to fall in the guidelines that the Tax Office has set out for when it will and when it won’t remit general interest charge. tr

If you want to know more about general interest charge remissions, there is an ebook on my website that you can download and have a read of. That talks about how to ask for a remission of general interest charge, and it also talks about how to negotiate a payment plan with the Tax Office.

And look, if you’ve found yourself in this situation and you want to have a chat about how I can help, give me a call and let’s see what I can do for you.


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About Hartigan Law

I am a specialist tax disputes lawyer with over a decade of experience in dealing with the ATO.

I’ve helped many clients to deal with their tax debt, including debts that have been re-raised by the ATO. I have helped clients to avoid bankruptcy by reducing their tax debt and successfully negotiating payment plans with the ATO.

I work with clients all over Australia. I can do this because the tax issues I deal with are Federal – the tax law is the same no matter where in Australia you live.

You can contact me on 1300 75 84 84 or at catriona@hartiganlaw.com.au.