Using a credit or refund for an outstanding debt
Offsetting is where we use a credit from one account to pay off a debt on another account. The account may be with us or another government agency. Generally, offsetting is automatic, and we offset credits against tax debts before debts with other government agencies.
Many business taxpayers have a range of different accounts for their various tax obligations. Generally, if we owe you money, we are required to refund that amount to you. You may, however, receive a reduced refund or no refund at all because you have an outstanding debt with:
- us for another type of tax – for example, we may offset your BAS refund against your income tax debt
- us for previously debts on hold – for example, we are required to offset credits to reduce outstanding tax debts (except in certain circumstances), including debts we previously put on hold
- another government department – for example, we may offset your BAS refund against a debt you have with Services Australia.
We will usually apply all or part of your refund to reduce the debt. In certain circumstances, we don't have to offset amounts including when the amount owing is:
- due but not yet payable
- subject to a payment arrangement and you are complying with that arrangement
- an amount we have agreed to defer recovery action on, and
- debts which relate to director penalties.
If any of the above situations applies to you, we may refund the full or partial amount if it is appropriate to do so. However, we encourage you to contact us before or at the time of lodging your BAS or your income tax return if you think one of the above situations apply to you.
Notifying you
We will notify you about your offset. If we use your refund to offset an amount owed to another government department or agency, they will also notify you that we have paid an amount on your behalf.
Find out about:
- Voluntary payments
- Incorrect or incomplete bank account details
- Outstanding activity statements
- Checking refunds
See also:
- PS LA 2011/21 Offsetting of refunds and credits against taxation and other debts
- Non-pursued debts
Offsetting for GST branches and PAYG withholding branches
The following information will help you understand how offsetting operates for GST branches and pay as you go (PAYG) withholding branches.
When an entity registers a branch for GST or PAYG withholding purposes, the entity is called the 'parent entity'.
Each branch has a separate integrated client account distinct from the parent entity's integrated client account. An integrated client account may also be referred to as a branch or business activity statement account.
From 1 January 2022, automatic offsetting will apply to all GST branches and PAYG withholding branches. If there is a credit on an integrated client account, it will automatically be used to reduce a debt firstly on other integrated client accounts of the parent entity.
We will then use remaining credits on any integrated client account and apply them against debts on the other accounts of the parent entity, such as fringe benefits tax and income tax accounts.
Any amounts offset to other accounts will appear on the relevant statement of account.
Example 1: Offsetting for GST branches and PAYG withholding branches
Sam owns a coffee shop franchise which he runs with his wife (the parent entity). Sam also owns a coffee shop franchise managed by his daughter, Abby and he owns another franchise managed by his son, Joe.
Each franchise has a separate accounting system, but they are all owned by Sam with the same tax file number (TFN) and Australian business number (ABN). Sam chooses to register the franchises as branches.
Sam and each branch lodges a BAS. As a result:
- Sam has a $22,000 amount refundable (credit)
- Abby's branch has a $2,000 amount payable (debt), which remains unpaid
- Joe's branch has a $1,000 amount payable (debt), which remains unpaid.
The branches are part of the same parent entity and offsetting between the accounts will occur when a credit in one account is available to offset against a debt in another account.
The credit on Sam's account is offset against the outstanding debts in the branch accounts of Abby and Joe. Sam receives a $19,000 refund for the coffee shop he runs with his wife, and the branch accounts of Abby and Joe have a $0 balance.
If the branches relating to the franchises run by Abby and Joe had paid all amounts due before the offsetting occurred, Sam would have been refunded $22,000.
End of exampleSee also:
Offsetting for GST joint ventures
The following information will help you understand how offsetting will operate for GST joint ventures.
From 1 January 2022, automatic offsetting will apply to all GST joint ventures. If an entity is a GST joint venture operator, credits on any of the entity's accounts will be automatically offset against tax debts on any of their other accounts. This includes GST joint venture accounts and the entity's own integrated client account, fringe benefits tax and income tax accounts.
If you are the operator of multiple joint ventures, we will use credits on one joint venture account to offset against tax debts on another joint venture account.
The amount refundable to a participant of a GST joint venture will not be offset against another participant's tax debts. Also, a credit of a participant (who is not the operator) of a GST joint venture will not be automatically offset against a tax debt on the operator's GST joint venture account.
Any amounts offset to other accounts will appear on the relevant statement of account.
Example 2: Offsetting for GST joint ventures
An operator and two participants form a GST joint venture. Both the operator and participants are not members of any other GST joint venture.
The operator now has two reporting responsibilities:
- their own accounts
- a separate account for reporting obligations for the joint venture.
BAS lodgments are made, and as a result:
- the joint venture operator has a $750,000 amount refundable (credit) on its GST joint venture account
- the operator also has a $150,000 amount payable (debt) on its own integrated client account which remains unpaid
- the first participant has a $50,000 amount payable (debt) on its income tax account which remains unpaid
- the second participant has a $100,000 amount refundable (credit) on its own integrated client account.
The $150,000 tax debt owed by the operator is automatically reduced when the $750,000 credit in the operator's GST joint venture account is applied against the debt.
The remaining amount of $600,000 is refunded to the operator. The operator now has a $0 balance. The first participant still has an outstanding debt of $50,000.
If credits weren't available on the GST joint venture account, the second participant's credit of $100,000 would not have been automatically offset against the operator's tax debt. It also won't be applied against the first participant's tax debt.
End of example