Will my tax refund be taken while I am on a payment plan?

How offsetting works on a payment plan

Offsetting is automatic. When you lodge a return that produces a refund, or a BAS that puts your activity statement account into credit, the ATO's system applies that credit to any outstanding debt before paying anything out. A payment plan does not switch this off. The ATO's own conditions say the offset will not replace the required instalment payment.

In practice that means:

• The refund disappears into the debt and you receive whatever is left, if anything.
• Your next direct debit still comes out on the normal date for the normal amount.
• The plan simply finishes earlier, because the balance is smaller.

Credits can move between accounts too. A refund on your income tax account can be used to pay down an activity statement debt, including one that is on a plan.

What you can do about it

You cannot stop the offset just because you are on a plan and keeping to it. There are three things worth knowing:

• Ask for the plan to be recalculated. If a large refund has knocked the balance down, call 13 11 42 and ask whether the remaining instalments can be reduced or the term shortened. The ATO generally prefers the term shortened, but a lower instalment is possible if your circumstances warrant it.
• Plan for it. If you were counting on a refund to cover the next BAS or an upfront amount, adjust now. A plan that depends on money the ATO will intercept is a plan that defaults.
• Serious hardship. The ATO can decide not to offset a refund where doing so would leave an individual unable to afford basics such as food, housing or medical treatment. This is a formal serious hardship decision, only available to individuals and sole traders, and it is not granted just because the refund would be useful.

Refunds and debts you did not know about

Offsetting also applies to debts on hold and to old debts the ATO has re-raised. A refund can be swallowed by a debt you had forgotten, or never knew existed, while your current plan carries on untouched. If that has happened, check the transaction on your ATO account statement; it will show the credit being transferred to the debt it paid.

See why was my refund used to pay an old debt if the debt does not look familiar, and old ATO debt reappeared for how re-raised debts are handled. If the debt is wrong, you can dispute it, but the offset stands while the dispute runs unless the ATO agrees otherwise.

What to do next

1. Check your ATO account statement after lodging to see where any refund was applied.
2. If a refund has reduced the balance significantly, call 13 11 42 and ask for the plan to be recalculated.
3. Rework your plan budget on the basis that no refund will reach your bank account until the debt is cleared.

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