An Australian accountant has warned business owners after the Australian Taxation Office (ATO) refused to refund a $20,000 overpayment, highlighting the growing risks of prepaying tax debts.
ATO Tightens Its Approach to Refunds
A business owner recently mistakenly paid their ATO debt twice, leaving them with an overpayment of $20,000. Expecting a routine refund, the business’s accountant lodged a request—but weeks later, the ATO denied the refund.
Why? The client had an upcoming $150,000 tax bill, which was not yet due. However, the ATO refused to process the refund, stating that the excess amount would be applied to future liabilities instead.
For many small businesses struggling with cash flow, such a situation could be financially damaging. If a business was depending on that refund to cover expenses, payroll, or reinvestment, the ATO’s decision could cause serious cash flow issues.
ATO’s Strict Stance on Prepaid Taxes
In response to inquiries, an ATO spokesperson confirmed that payments made to the ATO are automatically applied to any outstanding or upcoming tax debts. Refunds are only granted in limited circumstances, even when the overpayment was made in error.
This reflects a broader crackdown by the ATO, as it adopts a stricter approach to lodgements, payment plans, and tax extensions. Business owners must be cautious about making early or excess tax payments, as retrieving these funds from the ATO may be difficult.
Why Prepaying Your Tax Bill May Be Risky
Many businesses prefer to prepay their PAYG or tax liabilities to keep up with obligations, but this approach can backfire if funds are unexpectedly needed elsewhere. Unlike a traditional bank account, money sitting in your ATO account does not earn interest and is difficult to retrieve.
A more effective strategy is to set up a dedicated tax savings account where funds are set aside but remain accessible. This allows businesses to:
✔ Earn interest on reserved tax funds.
✔ Maintain control over their own cash flow.
✔ Avoid complications if an unexpected expense arises.
How Boa & Co. Can Help
Managing tax payments efficiently can make or break a business’s financial stability. At Boa & Co. Chartered Accountants, we help clients navigate ATO policies, optimize cash flow, and avoid costly mistakes.
If you are unsure about managing your tax obligations or concerned about the ATO’s stricter stance, get in touch with us today. Our expert team can review your financial strategy and ensure you remain in control of your business’s cash flow.
Call 1300 952 286, email [email protected], or visit www.boanco.com.au to discuss how we can help you stay in control of your finances.