Why was my refund used to pay an old debt?

How the offset works

When a return or activity statement produces a credit, the ATO's system checks every account under your tax file number or ABN for an outstanding amount. If it finds one, the credit goes there first and only the remainder is paid to you. It works across taxes: an income tax refund can pay a GST debt, and a GST credit can pay income tax. Our page on whether the ATO can keep your refund covers the general rule.

Offsetting applies to a debt on hold even though the ATO had stopped chasing it and even though it may not have appeared in your balance. It also applies to a debt already on a payment plan: the offset reduces the debt but does not replace your next instalment. You will get a notice after the event showing the reduced refund, and the offset appears as a transaction on the account that held the debt.

Why you did not know about the debt

• It was on hold. Until the ATO started adding them to balances from August 2025, debts on hold were invisible in the balance you saw online. The debt still existed and still attracted offsets. Our page on what a debt on hold is explains this.
• It sits on a different account. Income tax, activity statements and other liabilities are separate accounts. A clean income tax account tells you nothing about an old BAS debt.
• It comes from an old business. Sole trader debts are personal. A GST or PAYG withholding amount from a business you closed years ago is still yours.
• Letters went elsewhere. The ATO writes to the address or tax agent on file at the time. If you moved or changed agents, the original notices may never have reached you.

Can you get the refund back?

Usually not, if the debt is genuine. The ATO has no general discretion to hand back a refund it has lawfully offset. There are three situations worth pursuing.

1. The debt is wrong. If the amount rests on a default assessment, a misposted payment or a period that is not yours, fix the underlying debt by lodging the missing return or disputing it. Once the debt is corrected, the credit that was offset against it is released.
2. The debt was placed on hold before 1 January 2017. The ATO paused offsets against those debts in February 2024 while a law change giving the Commissioner discretion not to offset them is dealt with. If a pre-2017 debt has taken your refund since then, query it with the ATO on 1800 305 499.
3. Serious hardship. The ATO can decide not to offset where doing so would leave an individual unable to afford food, housing or medical care. This normally has to be requested before the refund is processed, with evidence, and it is a narrow discretion rather than a right.

What to do now

Find the debt on your statement of account, work out what period and tax it relates to, and how much of it is interest. If the offset cleared it, you are done and the remaining balance should be nil. If a balance remains, GIC at 11.43% p.a. will apply to it, subject to the 6 month remission window for debts re-raised from hold, so decide now whether to pay, set up a plan, or ask for interest remission. If you have another refund coming, expect the same thing to happen unless the debt is dealt with first.

What to do next

1. Log in to ATO online services, open each account, and find the offset transaction and the debt it was applied to, including any transaction described as non-pursuit.
2. Check whether the debt is correct, and lodge any missing return or object if it rests on an estimate or an error.
3. If a balance remains, set up a payment plan or ask for GIC remission before your next return is due, so the next refund is not a surprise.

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