What counts as serious hardship for the ATO?

The three tests the ATO applies

The ATO's practice statement on debt relief sets out how a release decision is made. Every application is measured against all three:

1. Income and outgoings. The ATO looks at your household's fortnightly income against reasonable living expenses. If there is genuinely nothing left after essentials, that supports hardship. If there is a surplus, the ATO will usually expect a payment plan for at least part of the debt.
2. Assets and liabilities. Owning a home, a car, household goods, tools of trade and modest savings is treated as normal where it is consistent with ordinary community standards. Owning a second property, an investment portfolio or a boat generally is not. The question is whether you could pay by selling or borrowing against something without losing the necessities.
3. Other factors. How the debt arose, whether you disposed of money or assets without providing for tax, your lodgement history, other debts and how they arose, and whether release would actually fix your position or just delay the same problem.

The ATO also considers things outside your control that contribute to hardship, such as illness, disability, family breakdown, natural disaster or the loss of a job.

What tends to count against an application

• Hardship that looks temporary, for example a short gap between jobs, where the ATO would rather defer or set up an ATO payment plan.
• Money spent on other creditors, or assets sold or gifted, while the tax debt was left unpaid.
• Returns or activity statements still outstanding. The ATO will not decide until it knows the full amount you owe.
• A pattern of not lodging or not paying without a reason. Compliance history is an explicit factor.
• No evidence that you have provided for future tax, so the same debt would build again next year.
• Release would not change much because other debts would still leave you in hardship. In that case the ATO may suggest bankruptcy or a debt agreement instead.

Release can be partial

Serious hardship is not all or nothing. The ATO's own guidance says full release is not appropriate where partial release is enough. A common outcome is that part of the debt is released and the rest goes on a long, low payment plan, with interest remitted. If your application is refused in full or in part, you can lodge an objection, and you can reapply if your circumstances change or you have new information.

If you are not in serious hardship but simply cannot pay in one go, you still have options: a payment plan, interest remission, and a request that the ATO not offset a refund. See what to do if you cannot pay a tax bill.

What to do next

1. Draw up an honest fortnightly budget of household income and essential outgoings, because that is the first test the ATO applies.
2. List your assets and debts, including your home, vehicles and superannuation, and note which could realistically be used to pay.
3. Write a short timeline of how the debt arose and what changed, especially anything outside your control.
4. Lodge anything outstanding before you apply, then use the ATO's debt release tool to confirm eligibility.

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