6.1 The third term of reference involves an examination of the effectiveness of the Tax Office's policies and procedures to ensure that GST refunds are not inappropriately offset against other tax debts.

6.2 During this review, taxpayers raised a number of concerns about the Tax Office's policies and procedures for offsetting GST refunds against other tax debts. The principal concern was that the Tax Office does not provide them with full details of any offsets undertaken in respect of GST refunds due to them.

Nature of Tax Office's policy for offsets against GST refunds

6.3 The Tax Office's policy for offsetting BAS refunds (including those which arise from GST refunds) against other tax debts and amounts due to other Government agencies, is described in Chapter 72 of the ATO Receivables Policy. This policy is available on the Tax Office's website at www.ato.gov.au.

6.4 This policy is based on legislative provisions contained in Division 3 of Part IIB of the Taxation Administration Act 1953 (TAA) which make it mandatory for the Commissioner to offset a BAS refund against any tax debt of the taxpayer which is outstanding.

6.5 Although Chapter 72 is the official Tax Office policy statement on offsetting BAS refunds against other tax debts, the Inspector-General was only able to obtain a fuller understanding of the nature of this policy from additional material gathered for the purposes of this review from both the Tax Office74 and taxpayers.

6.6 From this additional material, the Tax Office's policy is to automatically offset a BAS refund against another tax debt unless, generally, one of the following conditions applies:

  • the BAS refund or debt against which it is to be offset is less than $500;75
  • the relevant tax debt is not yet due and payable (this exception does not apply however to other BAS debts);
  • the tax debt is the subject of a payment arrangement or a deferral of recovery agreement;
  • the tax debt is disputed;
  • the tax debt arises from a tax which is subject to special statutory rules which impact on the ability to offset;
  • the tax debt involves a Tax Office account which is held on a computer system which cannot yet interact with the refunder process (This currently applies to all superannuation accounts); or
  • the taxpayer can demonstrate that the offset would cause serious financial hardship.76

6.7 The Tax Office has indicated that the above seven circumstances do not apply where the amount to be offset involves child support. In these cases the BAS refund must be offset against the child support debt and the balance paid to the Child Support Registrar rather than to the taxpayer.77

6.8 Where an offset is required, the Tax Office has advised that an intercept or indicator is set on the taxpayer's account and the refund is temporarily stored while the Tax Office's systems effect the necessary transactions or transfers. During this period no other action is possible on the account.78

6.9 The Tax Office has also advised that where an offset occurs, it is determined and processed in accordance with a pre-set hierarchical order.79

6.10 Where an offset has been made, the Tax Office is generally obliged by law to refund to the taxpayer any remaining credit on their running balance account.

6.11 However, there are a number of circumstances where this refund will not occur automatically and where the taxpayer must request the Tax Office to make this refund.

6.12 One such circumstance is where the amount left in the taxpayer's running balance account arises from a voluntary amount of tax previously paid by the taxpayer. In this case, the law requires that the Tax Office can only refund this amount upon request by the taxpayer.80

6.13 Other circumstances where it will be necessary for a taxpayer to request payment of any credit left in their account after an offset include where the taxpayer has a payment arrangement and has not been advised that the offset forms part of the arrangement, and where the refund has been applied to a disputed debt.81

6.14 The ATO Receivables Policy also acknowledges one further instance where taxpayers will need to request a refund — where the refund has been inadvertently set against an income tax amount which is not yet due and payable.82

6.15 The Tax Office has advised that apart from the above kinds of circumstances, once an offset has been made it will generally pay any remaining credit balance due to the taxpayer automatically.83

Taxpayer concerns

6.16 Taxpayer concerns raised about the offsetting process may be grouped under the following headings:

  • the transparency and readability of the Tax Office's offsets policy;
  • the Tax Office's processes for refunding any credit balance to taxpayers; and
  • the Tax Office's communication processes with individual taxpayers concerning offsets made on their accounts.

Each of these concerns is discussed in more detail below.

Transparency of offsets policy

6.17 Submissions made during the course of this review noted that the existence and location of the Tax Office's offsetting policy were unknown to many tax practitioners. It was also noted that Tax Office staff do not direct taxpayers or tax practitioners to this policy. Even where tax practitioners were aware that this policy was on the Tax Office's website, it was indicated that this policy was difficult to locate.

6.18 Additional concerns were raised about the readability of this policy. It was suggested that the Tax Office produce a simple guide on when it will withhold BAS refunds, including the circumstances in which this will be done by way of offset.

Inspector-General's comments

6.19 The Inspector-General agrees with these concerns.

6.20 The Inspector-General particularly notes that the ATO Receivables Policy does not give a complete and clear indication to taxpayers of the circumstances in which a BAS refund will be offset against other tax or Commonwealth debts. The Inspector-General was only able to compile a better picture of this policy by drawing upon other ATO material provided by the Tax Office during the course of this review and additional material provided by taxpayers.

6.21 The Inspector-General also notes that Chapter 72 of the ATO Receivables Policy does not contain a simple summary of the circumstances in which offsetting will or will not occur.

6.22 In addition, Chapter 72 has a number of important omissions as to current Tax Office practice. For example, it does not set out the thresholds below which offsetting will not occur. It also does not indicate the circumstances in which, after an offset, any balance remaining on the taxpayer's account with the Tax Office will not be automatically refunded to the taxpayer, but will only be so refunded at the taxpayer's request. It also does not indicate that superannuation accounts will not be automatically offset, due to systems constraints.

Tax Office policy for paying credit balances

6.23 Numerous examples were provided to the Inspector-General during the course of the review where automatic payment of refund amounts left in a taxpayer's account after an offsetting process did not occur. These instances included additional situations to those listed above. An example of these types of cases is where the relevant refund had been held pending detailed Tax Office compliance activity.

Tax Office communication processes concerning offsets

6.24 In the ATO Receivables Policy, the Tax Office acknowledges that the present state of its information technology systems is such that taxpayers may not be provided with full details of all automatic offsets. The Tax Office states that it is endeavouring to adjust its systems so that this information can be provided. In the meantime, it notes that where an offset has occurred the taxpayer may contact the Tax Office to obtain the exact details of the offset.84

6.25 The above comments lead to the following recommendation.

Subsidiary recommendation 8

The Inspector-General recommends that the Tax Office provide clearer guidance to taxpayers generally of the circumstances in which an offset involving a GST refund will occur and when a taxpayer will need to request the Tax Office to pay any credit balances that arise after an offset is made.

Tax Office response

6.26 The Tax Office agrees with this recommendation. The guidelines on when the Tax Office will offset a taxpayer's credit entitlement will be reviewed to develop clearer information for the community, particularly in relation to offsets involving GST refunds and when a taxpayer will need to request a refund of any credit balances that arise after an offset is made. In developing these guidelines the Tax Office will consult with the Inspector-General and the Special Tax Advisor to the Ombudsman. The improved guidelines on offsetting will be published by May 2005.

6.27 The ATO Receivables Policy has recently been positioned in a more prominent location on the Tax Office website and should result in improved accessibility.


74 This information was principally provided in ATO Minute No IGT-GST14-2004.

75 The $500 threshold figure is not mentioned in the ATO Receivables Policy and was advised to the Inspector-General in ATO Minute No IGT-GST14-2004.

76 ATO Receivables Policy at paragraphs 72.4.1 to 72.4.82.

77 ATO Receivables Policy at paragraph 72.4.6.

78 ATO Minute No IGT-GST10-2004 at paragraph 2.2.3 on p. 4.

79 This hierarchy is set out in the ATO Receivables Policy at paragraph 7.6.1.

80 Section 8AAZLF(2) of the TAA.

81 ATO Minute No IGT-GST02-2004 at paragraph 4.3.2.

82 ATO Receivables Policy at paragraph 72.4.14.

83 ATO Minute No IGT-GST14-2004 at paragraphs 1.3 and 3.1.

84 ATO Receivables Policy at paragraph 72.4.82.