5.2.8 Tax refund intercepts

Context

Generally, the Registrar will automatically obtain and apply a tax refund amount if there is a relevant debt that is due and payable (CSRC Act section 72). This is known as a tax refund intercept (1.1.T.40).

The Registrar will apply the tax refund amount unless there are reasons not to do so. A tax refund might not be intercepted, if the relevant debtor would suffer financial hardship. A person who is suffering serious financial hardship and expecting a tax refund amount should contact Services Australia to discuss their circumstances and to make a payment arrangement before they lodge their tax return.

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CSRC Act section 72 applies where:

• the Commissioner of Taxation would otherwise be required to refund an amount to a person under the Taxation Administration Act section 8AAZLF, and
• the person owes a relevant debt to the Commonwealth.

Where section 72 applies, the Registrar can require the Commissioner to pay the tax refund amount or the amount owing as a debt (whichever is the lesser) to the Registrar. The Registrar applies this amount to the person's debt.

• What are relevant debts?
• Which amounts can be applied to debts?
• Financial hardship

What are relevant debts?

Tax refund amounts can only be applied against relevant debts. A 'relevant debt' is a child support debt (1.1.C.90), a child support related debt (1.1.C.160) or a carer debt (1.1.C.30). A 'relevant debtor' is the person who is liable to pay a relevant debt (CSRC Act section 4(1)).

The Registrar cannot obtain and hold a tax refund amount in order to apply it to a debt that may become due and payable in the future. However, intercepted tax refund amounts can be applied to debts that are due but not yet payable.

Which amounts can be applied to debts?

Amounts that the Commissioner of Taxation would otherwise refund to a taxpayer under the Taxation Administration Act section 8AAZLF can be applied to that person's relevant debt. The Commissioner will notify the Registrar of any tax refund amount available after assessing a taxpayer's income tax return or after a business activity statement has been lodged.

If the person's relevant debt equals or exceeds the amount of the tax refund amount owing to the person, the Registrar can apply the full tax refund amount to the debt. Where the relevant debt is less than the tax refund amount, the Registrar can apply an amount of the tax refund equal to the amount of the debt. The Commissioner will refund the balance to the person (CSRC Act section 72(3)).

A tax refund amount can include refundable tax offset amounts such as a private health insurance offset. Where a relevant debtor is entitled to a refundable tax offset, it is applied as a tax offset to that person's tax liability. A person's tax liability is the tax payable by that person based upon his or her taxable income. If the refundable tax offset is greater than the tax liability, the excess amount is refunded to the taxpayer.

Other tax rebates that act as tax offsets also operate in this manner including the overseas forces tax offset and the education tax refund (for 2010-2011 and earlier years).

For tax offsets other than refundable tax offsets, the offset can only reduce the person's tax payable to zero. That is, if the person's tax offsets are greater than their tax due, the excess is not refunded. However, applying a tax offset may still result in a tax refund amount if it means the person has paid more tax during the year than required.

Not all amounts that are paid by the Commissioner are refunded under section 8AAZLF. A potential refund to a company associated with a person who owes a debt is not subject to section 72 and will not be reported to the Registrar.

Financial hardship

The Registrar will consider a person is in financial hardship if, at the time that the Registrar is considering taking their tax refund amount, the person can show that:

• their financial commitments exceed their income, or
• they have specific expenses to pay outside their essential living expenses.

The expenditure is not limited to their basic needs such as food, clothing, accommodation, utilities, and education costs for children, however, the expenses must be necessary and the person must have explored other payment options to address these expenses or debts.

If the person has made, or will enter into, a satisfactory payment arrangement for their relevant debt, the Registrar will not apply their tax refund amount to the debt if doing so would deprive that person of the ability to meet their other commitments.

The Registrar will not consider that a person will suffer financial hardship if applying a tax refund amount merely limits their social activities or entertainment, or limits access to goods or services of a better nature or standard.

The Registrar will also consider:

• the extent to which the person knowingly contributed to the circumstance, and
• the number of times the person has previously claimed financial hardship.