While it seems the ATO has paused sending these letters for now, some clients may have already received letters in connection with debts placed on hold that outline the ATO’s approach to collecting these types of debts.

Debts on hold are considered uneconomical to pursue and the ATO wouldn’t normally commit resources to try and collect them. However, if a client becomes entitled to any refunds or credits (for example, upon lodging their BAS or tax return), these will normally be used to pay the debts even if they are on hold.

Importantly, many Australians may not be aware that they have debts that have been placed on hold. This is because they will not show up as an outstanding balance on the account. The ATO guidance sets out on how these debts can be specifically located using online services for individuals, sole traders and businesses.

The ATO have said they remain legally bound to collect old debts, while acknowledging public confusion, the tax office insists it lacks the power to forgive debts and is required by law to offset them against refunds, regardless of age.

The historical nature of these debts and the ATO's limited information make verification and dispute nearly impossible, leaving many feeling frustrated.

The Australian tax ombudsman, Karen Payne, said the ATO campaign to take the debts from refunds has triggered a significant increase in complaints and may require a legislative change.   Payne further stated that the ombudsman's office will urge the government to re-examine the narrow legal framework for debt suspension, suggesting including placing time limits on debt collection efforts.