In the ever-evolving landscape of Australian taxation, staying informed is crucial, especially for those navigating the complexities of business ownership. A recent incident involving a tax refund refusal by the Australian Taxation Office (ATO) has sent ripples of concern through the accounting community, highlighting the ATO’s increasingly stringent approach to tax affairs.
Hripsime Demirdjian, an accountant and registered tax agent, shared her astonishment when her client’s request for a refund of a double-paid tax debt was denied by the ATO. The client, a diligent business owner, had inadvertently paid their $20,000 tax debt twice and expected a straightforward refund process.
However, the ATO’s unexpected refusal to process the refund, despite the payment not being overdue, has served as a stark warning to taxpayers across the nation.
The refusal came as a surprise to Demirdjian, who has a history of successfully securing refunds from the ATO for her clients. This particular client was in good standing, with all lodgements and payments up to date. Yet, the ATO’s decision to withhold the refund due to an upcoming tax debt of approximately $150,000 has raised questions about ATO’s policies.
‘They had an upcoming amount that was going to be due to the ATO but that was in several weeks time. But in this case, the ATO advised us that because of the upcoming debt, they would not be able to refund the money, which was quite unexpected because the payment was not overdue as of yet,’ she said.
@hivewise_au This is why you should never pre-pay tax to the ATO 💸 Our client accidentally double paid the ATO $20,000 and the ATO didn’t refund them the money 🤨
♬ original sound – The Wise Accountant – The Wise Accountant
An ATO spokesperson, while unable to comment on individual cases for privacy reasons, clarified to Yahoo Finance that the law mandates the ATO to apply any payments, credits, or refunds towards outstanding debts, with very few exceptions.
Taxpayers who overpay can request a refund of the excess amount, but as Demirdjian’s experience shows, this may not always be a straightforward process.
The ATO’s firm stance is not limited to refunds but extends to lodgement extensions and payment plans, reflecting a broader tightening of tax administration.
Demirdjian’s advice to businesses is clear: avoid prepaying tax to the ATO. While some clients may prefer to pay PAYG upfront or prepay amounts on their ATO account, she cautions against this practice. The recent incident underscores the potential difficulties in reclaiming prepaid funds, which could be critical in times of financial need.
Instead, Demirdjian advocates for a more controlled approach to managing tax obligations. She recommends setting up a separate bank account where businesses can accrue cash for upcoming tax debts. This strategy not only allows businesses to earn interest on their savings but also ensures they retain control over their funds until the tax is due.
The lesson here is one of caution and preparedness. As the ATO tightens its grip on tax affairs, businesses must navigate their financial planning with greater care. By setting aside tax funds in a separate account, businesses can safeguard their cash flow and remain agile in the face of unexpected fiscal challenges.
We at YourLifeChoices urge our readers, particularly those running small businesses or managing their tax affairs, to take note of these developments. Have you experienced similar issues with the ATO, or do you have strategies in place to manage your tax payments effectively? Share your stories and tips in the comments below.
Also read: ATO’s big shake-up: Will your business be affected?
