ATO Refunds to Offset Tax Liability
/ATO Debits Offsetting ATO Credits
‘Offsetting’ occurs when the Australian Taxation Office (ATO) takes a credit from one tax account and applies it as payment for a charge on another account. These charges could be tax liabilities or debts with other government agencies.
The ATO tax credit is automatically used to reduce, or offset, the amount owed on another account. While the credit could be used to reduce debts with other government agencies, tax debts are given first offset priority.
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How Offsetting Works
Many business taxpayers have multiple ATO accounts for different tax obligations. When the ATO owes money to a taxpayer, the taxpayer would typically receive a refund. However, the refund may be reduced or withheld if the taxpayer has an outstanding debt. Offsetting can occur in the following situations:
Outstanding tax debts with the ATO: For example, a BAS refund may be offset against an income tax debt.
Previously held debts: The ATO may use credits to reduce debts previously placed on hold.
Debts with other government agencies: For example, a BAS refund may be offset against a debt with Services Australia.
Generally, the ATO will offset credits against liabilities that are due but not yet payable. A liability is considered ‘due’ when an entity is legally required to pay it, even if the actual payment date has not yet arrived. It becomes ‘payable’ once the payment date arrives.
For Example:
A business files its BAS and owes $1,000 in GST, but the payment is not due until next month. The ATO considers the $1,000 due because the business is legally required to pay it, even though the payment date is in the future. If the business has a credit of $600 in another tax account, the ATO might use that credit to reduce the $1,000 debt, even though it is not yet time to pay.
$600 offset against $1,000 leaves $400, so once the offset is applied, the business would owe the ATO $400 in GST.
Contacting the ATO Before Lodging
If an offset will cause financial hardship, an authorised bookkeeper can request an ATO refund on your behalf instead of allowing the credit to be offset against a liability. The ATO may also exercise discretion to reverse the offset after it has already occurred if the ATO determines that the circumstances at the time warrant doing so.
If you are expecting a BAS refund, the team at QiBalance Bookkeeping can help you understand how the ATO may offset the amount against any outstanding liabilities or other debts – even those not yet payable. QiBalance Bookkeeping clients are welcome to contact us to assess how an offset may impact their ATO refund and to consider whether contacting the ATO is advisable.
Disclaimer: This blog post is a summary of a newsletter produced by the Institute of Certified Bookkeepers and distributed by members. All or any advice contained in this article is of a general nature only and may not apply to your individual business circumstances.
For specific advice relating to your specific situation, please contact your accountant or contact QiBalance Bookkeeping for further discussion.
The Institute of Certified Bookkeepers
Tel: 1300 856 181
Email: admin@icb.org.au
