Release From Tax Debt: Hardship and Evidence

Distinguish Release From Other Tax Debt Relief

Statutory release removes all or part of a qualifying liability through the Commissioner’s discretion under Division 340 of Schedule 1 to the Taxation Administration Act 1953. The application asks the Commissioner to exercise that discretion because payment would cause serious hardship.

Tax debt is money owed under tax obligations. The account can contain several kinds of liability, each with its own treatment. Calling the request “debt forgiveness” does not establish which power applies.

Bankruptcy has separate rules about personal debts and their recovery. Keep that assessment distinct from the release application and consider the client’s bankruptcy status where it affects the advice.

Check the Applicant and Eligible Debts

Match the applicant’s legal identity and capacity to each liability before assessing hardship. An individual, including a sole trader, can apply for an eligible personal debt. A deceased-estate trustee can apply where payment would cause serious hardship to the deceased person’s dependants.

A company, partnership or trust cannot apply as an entity through this route. The ATO’s practice statement separately recognises an individual’s personal liability incurred as a trustee for an eligible debt. Record the individual’s legal capacity instead of treating every trust-related balance alike.

The ATO’s release guidance identifies the following debts for consideration:

• Income tax and pay as you go (PAYG) instalments.
• Fringe benefits tax and its instalments.
• Medicare levy and Medicare levy surcharge.
• Withholding taxes on dividends, interest or royalties, mining withholding tax and managed investment trust withholding tax.
• Some penalties and interest charges attached to eligible debts.

Goods and services tax (GST), PAYG withholding and super guarantee charge cannot be released through this power. The ATO also excludes excess contributions tax, Division 293 liabilities and director penalties.

Obtain the notices and transaction account, then separate principal tax from penalties and interest. Record the relevant period, amount and statutory basis for each component. Section 340-10 determines which liabilities qualify, so an eligible income-tax balance does not make every charge on the account releasable.

A director penalty notice asserts a separate personal liability. Keep that notice and its response deadlines separate from the company account and the director’s personal income tax.

Explain Serious Hardship Through the Financial Position

Serious hardship concerns the loss of means to meet basic needs if the tax is paid. The ATO considers necessities such as accommodation, food, medical supplies, clothing and reasonable education against normal community standards.

Under PS LA 2011/17, the assessment examines household income and outgoings alongside assets and liabilities. Other relevant circumstances also affect the decision. Show dependants’ needs and the contributions actually available from other household members. Explain whether income can increase or other commitments can be rescheduled.

List assets with ownership shares, current values and secured debt. The ATO generally regards a reasonable home, motor vehicle, household goods and tools of trade as normal possessions. Reasonable cash for immediate living needs also has a different role from available investments or surplus assets. Explain the circumstances of each asset instead of assuming either automatic exemption or compulsory sale.

Hardship does not compel release. The ATO also considers why the debt arose, asset disposals and past compliance. It examines provision for future tax and whether releasing the eligible debt would actually relieve hardship. Explain other creditors and any temporary income interruption so the application addresses those questions directly.

Build the Income and Expenditure Evidence Schedule

Reconcile the household’s receipts and necessary expenditure over a common period, with every amount connected to its supporting document. Keep recurring resources separate from transfers between accounts and money received for a one-off purpose.

Obtain statements for the accounts used by the household, plus payslips and benefit records. Support recurring costs with tenancy documents, invoices or other records that explain the payment. Identify reimbursements and loan proceeds separately. A bank credit does not automatically establish taxable income or continuing capacity to pay.

Use the frequency selected on the application form consistently. NAT 15080 requests income before tax and totals after tax, so preserve both amounts and show the deductions between them. Avoid counting a partner’s full income and the same partner’s household contribution twice.

Fictional Fortnightly Household Schedule

Assume a fictional household has two adults and one dependant. All figures below are illustrative. Attachment labels identify fictional records, not documents from a real client.

Suppose the same statements show a $600 transfer from the applicant’s savings account and a $200 medical reimbursement. Match the transfer to the savings debit and exclude it from recurring income. Present the reimbursement beside the corresponding one-off $200 expense, outside the recurring schedule, so neither amount distorts the $50 shortfall.

The savings transfer still requires an explanation of available resources. Show the opening and closing savings balances and why the funds were used. Add an assets-and-liabilities schedule covering the household’s other accounts, secured debts and any saleable property. The $50 shortfall describes this example’s cash position. It does not decide the release application.

Where the statement bundle consumes professional time, FinTrace saves hours of manual statement review by consolidating supplied transactions into one searchable, categorised ledger. Its source fields give advisers direct access to the PDF filename and page behind a transaction. That makes it easier to prepare the schedule and explain transfers without repeatedly searching the bundle.

Mark each schedule entry as supported, estimated or awaiting a specified document in the adviser’s working file. Explain any difference between an invoice and the amount paid. Keep the client’s account of an expense separate from the evidence that establishes its amount.

Prepare and Submit the Release Application

Use the ATO’s maintained application instructions and retain the exact signed application sent to the ATO. Its application instructions distinguish debts of $10,000 or more from smaller debts. Below $10,000, the ATO says the form is unnecessary and the taxpayer can discuss release with it.

For an application requiring the form, follow this order.

1. Establish authority to act and the applicant’s capacity. Record the client’s instructions and the authority needed for ATO discussions. Obtain consent for a spouse or partner’s personal information where the declaration requires it.
2. Bring outstanding returns and activity statements up to date. Finalise unresolved tax disputes or amendment requests and outstanding insurance, compensation or damages claims. The ATO’s practice statement requires these matters to be resolved before determining release.
3. Use the Debt release tool identified in the ATO guidance to assess eligibility and access the Application for release, NAT 15080. Answer every question, including why the tax remains unpaid and how future tax will be met.
4. Attach the reconciled schedules and supporting copies. Number additional pages and identify the applicant and relevant question as the form directs. Keep original supporting records in the client file.
5. Obtain the required signatures and dates after the client approves the complete application and attachments. Check the declaration against the information actually included.
6. Post the original signed form and attachments to the address on the form. NAT 15080 gives Australian Taxation Office, Reply Paid 3129, PENRITH NSW 2740. Retain a complete copy, attachment index and available dispatch evidence.
7. Record the ATO acknowledgement and reference against the sent copy. If no acknowledgement arrives, contact the ATO with the dispatch details and confirm receipt before treating the application as received.

For a further-information request, map each question to the application and the relevant supporting record. Supply the missing explanation or updated document and retain the response with its submission evidence. Reconcile changed income or expenses across the whole schedule so the application remains internally consistent.

Check Collection and Payment Obligations Separately

A release application does not create an unconditional stay of recovery. PS LA 2011/17 says recovery is generally deferred while the ATO decides the application, with a decision made case by case. Exceptions include a claim lacking merit or a serious risk to recovery.

General interest charge continues to accrue while the application is determined. Interest remission is a separate route where release does not remove the charge. The form also states that payments can continue during consideration.

Contact the officer managing collection to establish which liabilities any deferral covers and how existing payment arrangements will be handled. Record the answer and the review point. An application concerning income tax does not resolve a separate GST balance, garnishee notice or court deadline.

If collection continues, provide the release reference and the evidence of hardship, then request a specific response to the collection action. For existing court proceedings or notices, identify the separate legal step and deadline. Keep meeting obligations that remain in force unless the ATO or court changes them.

Read the Decision and Identify the Next Route

Reconcile the written release decision to the liability schedule and the ATO account before advising what remains payable. Separate the amount released from any remaining principal, penalties and interest. A partial release can leave both an eligible balance and debts outside the release power.

Section 340-5 requires written notification within 28 days after the decision is made. That period runs from the decision, not from lodgement. Retain the reasons, further-information requests and the evidence supplied in response.

Section 340-5(7) gives an applicant dissatisfied with the release decision an objection right under Part IVC. Identify the particular decision and applicable deadline from the notice and governing provisions. After an objection decision, the ATO’s practice statement identifies further review by the Administrative Review Tribunal or an appeal to the Federal Court.

This challenges the release decision and the exercise of discretion. A challenge to the underlying assessment follows the separate ATO objection form process. A further release application can address changed circumstances or new material, but it does not replace a required objection within time.

Before closing the file, match the account adjustment to the decision and record how the remaining debt will be addressed. If the account and decision disagree, give the ATO the component-by-component reconciliation and obtain confirmation of the correction or explanation.