I am on Centrelink with an ATO debt. What are my options?

What the ATO can and cannot do while you are on Centrelink

Three things matter here.

• Refunds are offset. The ATO is required by law to use any tax refund or credit to pay down a debt, including a debt that is on hold or under a payment plan. If you are expecting a refund, assume it will be applied to the debt unless you ask otherwise (more on that below).
• Your Centrelink payment itself is protected. Social security law makes income support payments inalienable, which means the ATO cannot direct Services Australia to send part of your payment to it. There is no garnishee on the payment at source.
• A bank account is different. Once a payment lands in your account it is money in a bank account, and a bank garnishee notice can reach it. The law protects a saved amount, broadly the Centrelink paid into the account in the previous four weeks less what you withdrew, but anything above that is exposed. In practice the ATO treats garnishee as a last resort for people who have stopped engaging, and it is rare for someone on income support who is talking to the ATO.

Interest still runs. GIC is currently 11.43% a year, compounding daily, so a debt that is left alone grows even when the ATO is taking no action. Individuals who are not in business are not reported to credit bureaus, so the debt will not show on your credit file.

Your four options, in the order most people use them

1. A small payment plan. The ATO looks at capacity to pay, and a plan of $20 or $50 a fortnight is a real plan. Anything under $200,000 can be set up online without speaking to anyone. Read how ATO payment plans work before you commit to a figure, because a plan you cannot keep is worse than a smaller one you can.
2. Ask for interest to be remitted. A long period on income support, illness, job loss or family breakdown are all circumstances the ATO considers. Smaller GIC remission requests are often decided on the phone.
3. Apply for release on hardship grounds. This is the option that can actually wipe the debt. It is for individuals only, and it covers income tax, PAYG instalments and related interest and penalties. It does not cover GST, PAYG withholding or super guarantee charge. The ATO looks at your household's fortnightly income and expenses, your assets, and how the debt arose. Being on Centrelink does not make release automatic, but it goes a long way toward showing that paying the debt would leave you unable to afford food, housing, medical care or other essentials. See what counts as serious hardship and how to apply.
4. Ask the ATO not to offset your refund. The ATO has a limited discretion to pay a refund to you instead of applying it to the debt, but only where you are in serious hardship and need the money for essentials. You have to ask, ideally before the return is processed, and you will need to explain what the refund is for. If you do nothing, the offset happens automatically.

If the debt is from a business you used to run

Many people on Centrelink with a tax debt are former sole traders. The catch is that the business part of the debt, usually GST and PAYG withholding, cannot be released for hardship. For that part the realistic choices are a payment plan, non-pursuit (the ATO shelves a debt it decides is uneconomical to chase, without forgiving it), or in the worst cases bankruptcy, which does release GST and PAYG debts that are personal to a sole trader. The sole trader guide walks through those options honestly. A free financial counsellor on 1800 007 007 can help you work out which fits, and can speak to the ATO with you.

What to do next

1. Log in to ATO online services through myGov and write down the exact debt, split into tax, interest and penalties.
2. Call the ATO on 13 28 61, say you are on income support, and ask for a payment plan you can keep plus remission of the interest.
3. If the debt is income tax and paying it would leave you without essentials, lodge an application for release on hardship grounds, and ask the ATO not to offset any refund while it is considered.

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