Why Is My Small Business Tax Refund Less Than Expected?

In response to the COVID-19 pandemic, the Australian Taxation Office (ATO) temporarily suspended the collection of debts, including the use of credits and refunds to offset outstanding debts. The ATO have begun to resume these collection efforts, which may include reactivating debts that were previously placed on hold.

Debts that have been placed on hold were not reflected in your account balance but are still considered payable. Any new credits or refunds that you receive will be applied to offset these debts.

When a debt is put on hold, it is not reflected as an outstanding balance on your account and the ATO will not take action to collect it. However, it is still considered a payable debt.

When a debt is reactivated, it will once again appear on your account. You will be notified of this reactivation either through a phone call or written notification.

Why place debt on hold?

When a debt is placed on hold, the ATO will not actively pursue its collection. This is typically because it is not financially feasible for them to do so. However, if your circumstances change, such as becoming entitled to credits, the debt may be reactivated and applied to reduce your outstanding balance.

When the ATO make the decision to place a debt on hold, they will notify you by letter. The debt will be listed as “non-pursuit” on your Statement of Account in Online Services and it will not be reflected in your account balance as it will be considered “inactive”. However, it will still be recorded on your account and you will be still liable for the debt. General interest charges may apply.

Pro Tax Tip: If you’re in a position to pay off your debt, you can pay at any time. If you can’t pay off your debt in full, payments options can be arranged.

Financial difficulties can arise from a variety of circumstances, such as:

  • The closure of a business
  • Disconnection of an essential service, such as electricity
  • Repossession of a vehicle that is used for business purposes
  • Pending legal action for non-payment of debts
  • Time limitations for review periods
  • Court orders
  • Settlements
  • Other necessary expenses for the business or individuals you are responsible for.


Offsetting credits

Offsetting is the process of using credits or refunds from one account to pay off outstanding or on-hold debts on another account. This means that the ATO may use credits from one of your accounts to reduce the amount you owe on a debt that is on hold.

By law, the ATO are required to offset credits against any tax debt you owe, except in certain limited circumstances. These include:

  • having a payment plan for all outstanding debts that you are fully complying with
  • the tax debt has a future due date
  • the tax debt is for a director penalty liability
  • the available credit is a Family Tax Benefit amount
  • being granted a deferral of recovery action.

Re-raising debts on hold

The ATO may reactivate some or all of a tax debt that they previously placed on hold when new information becomes available that suggests that recovery of the debt is now possible. This may occur if:

  • Your circumstances have changed, and they have reason to believe that you are now able to pay the debt
  • You have agreed to pay the debt
  • We have offset a credit against the debt

When a debt is reactivated, you will receive a Statement of Account and the ATO may notify you or your authorized representative by phone or in writing.

If your debt is reactivated, you should pay the outstanding amount in full by the due date advised. If you are unable to pay by this date, you may be able to set up a payment plan to pay in instalments.

Pro Tax Tip: A tax agent will liaise with the ATO on your behalf to help pay your debt and explain what you’re required to do. They’ll help work out a payment plan for you.

What if your 2021/22 tax refund was less than expected?

In September, the ATO sent letters to some not-for-profits, small businesses, and individuals, advising them that they had a debt on hold and that any credits or refunds they received would be applied to offset this debt. This means that the refund amount they receive may be less than they had expected.

This process of offsetting refunds or credits was temporarily suspended due to the financial impact of the pandemic on taxpayers, but since June 2022 the ATO has resumed this process.

Disagree with a decision about your tax?

You can object to most tax assessments and decisions made by the ATO, including those related to income tax, GST, and super guarantee. The decisions and notices of assessment that the ATO send generally include instructions on how to lodge an objection and request a review.

For example, you may object if you believe that an amended tax assessment is not accurate, due to:

  • Disagreement with the ATOs interpretation of the law
  • Incomplete information leading to a wrong decision

The objections process provides an opportunity for an independent officer to review our decision. When lodging an objection, it is important to provide a detailed explanation of the issue and all supporting evidence upfront, so that the ATO can resolve your case as quickly as possible.

Upon receiving an objection, the ATO will review the facts and evidence provided. If they determine that the objection is valid, they will take action to amend any assessments or pay any money owed to you.

Depending on your specific circumstances, ITP tax accountants can assist with:

  • Extending the deadline for filing or paying your taxes
  • Developing a payment plan that is tailored to your situation
  • Waiving or reduce penalties or interest
  • Processing your tax return with priority
  • Preventing any tax refunds from being applied to pay debts with other government organizations
  • Postponing your tax filing and payment due dates
  • Help you stay informed about your tax debt and help you take proactive steps to manage and pay it off in a timely manner.

ITP Accounting Professionals have helped Australians maximise their tax deductions for over 5o years. There’s not a lot we don’t know about tax. If you have any questions about your individual circumstances, an ITP tax agent can help. Phone 1800 367 487 and chat with a friendly professional today.