ATO Debits Offset ATO Credits
Offsetting occurs when the ATO uses credit from one tax account to pay off a liability on another account, including tax debts or debts with other government agencies. This process is automatic, and credits are applied to tax debts first before being used for debts with other government agencies.
How Offsetting Works
Many business taxpayers have multiple accounts for different tax obligations. If the ATO owes money to a taxpayer, they would typically receive a refund. However, the refund may be reduced or withheld if the taxpayer has an outstanding debt. Offsetting can occur in the following situations:
- Outstanding tax debts with the ATO: For example, a BAS refund may be offset against an income tax debt.
- Previously held debts: The ATO may use credits to reduce debts previously placed on hold.
- Debts with other government agencies: For example, a BAS refund may be offset against a debt with Services Australia.
Generally, the ATO will offset credits against liabilities that are due but not yet payable. A liability is considered ‘due’ when an entity is legally required to pay it, even if the actual payment date has not yet arrived. It becomes ‘payable’ once the payment date arrives.
For Example:
A business files its BAS and owes $1,000 in GST, but the payment isn’t due until next month. The ATO considers the $1,000 due because the business is legally required to pay it, even though the payment date is in the future. If the business has a credit of $500 in another tax account, the ATO might use that credit to reduce the $1,000 debt, even though it’s not yet time to pay.
Contact the ATO Before Lodging
If offsetting will cause financial hardship, an authorised bookkeeper can request a refund on your behalf instead of allowing the credit to be offset against the liability. The ATO may also exercise discretion to reverse the offset after it has occurred if the circumstances at the time warrant it.
If you’re expecting a BAS refund, your bookkeeper can help you understand how the ATO may offset the amount against any outstanding liabilities or other debts — even those not yet payable. Speak with your bookkeeper before lodging to assess the impact on your refund and whether it’s advisable to contact the ATO.
