Tax time is here again, and for many Aussies, that means eagerly awaiting a little extra cash in the bank. But before you start planning how to spend your tax refund.

Whether it’s a treat for the grandkids, a weekend away, or just a bit of breathing room in the budget, there’s an important warning from Centrelink and the ATO that could affect your bottom line.

Why your tax refund might be smaller than you expect
Aussie taxpayers eagerly awaiting their tax returns are being cautioned that one possible reason for a lower-than-expected refund could be an outstanding debt. Services Australia has issued a reminder that it’s legally required to recover money owed, and this may include using your tax refund to help pay off that debt.

Services Australia, which oversees Centrelink, explained that 'if you have a debt with us at tax time, we may use your tax refund to repay it.'

'We may do this if you’re not actively making repayments towards your debt or you don’t have a repayment arrangement in place.'

This recovery process could apply to individuals receiving the Family Tax Benefit or Child Care Subsidy, former customers not repaying outstanding debts, or those with overdue Child Support payments.

Services Australia, which manages Centrelink, may use your tax refund to repay any Centrelink debts you owe if you haven’t set up a repayment arrangement or aren’t actively making repayments. Image source: Joshua Hoehne / Unsplash.

However, Services Australia noted that it won’t take money from your tax refund if repayments have been paused due to a natural disaster, emergency event, or if there’s a pending formal review.

How it all works
When balancing your Family Tax Benefit and Child Care Subsidy, Services Australia will first check for any overpayments or existing Centrelink debts.

Balancing begins in July for Family Tax Benefit and from mid-August for the Child Care Subsidy. Any overpaid amounts or unresolved debts will be recovered before any top-ups, supplements, or lump sum payments are issued.

In the case of Child Support, any owed or overpaid support will also be recovered using your tax refund.

In earlier news: ATO warns 82 per cent of Aussies make Centrelink payment mistake

Services Australia has urged parents facing financial hardship to reach out to the Child Support enquiry line before lodging their tax returns.

If you're a former Centrelink recipient without an existing repayment arrangement, and funds are deducted from your refund, you’ll be notified via letter. The deduction will also appear on your ATO Notice of Assessment as a 'Credit Offset to Centrelink'.

You can find more information about repaying Centrelink debts here.

What should you do if you’re worried?
If you think you might be affected, don’t wait for a nasty surprise.

Also read: 'It's best to wait': ATO reiterates warning about common tax mistakes

Here are some steps you can take:

1. Check your Centrelink account: Log in to your myGov account and see if you have any outstanding debts.
2. Set up a repayment plan: If you do owe money, contact Centrelink to arrange a repayment plan. This can help you avoid having your entire refund taken.
3. Contact the Child Support enquiry line: If you’re a parent who might experience hardship, get in touch before you lodge your tax return.
4. Keep an eye on your mail and myGov messages: Any official communication about your debt or refund will come through these channels.

Related story: Centrelink quietly changed how you can repay your debt—and it starts in a few days!

Key Takeaways

• Services Australia, which manages Centrelink, may use your tax refund to repay any Centrelink debts you owe if you haven’t set up a repayment arrangement or aren’t actively making repayments.
• If you receive Family Tax Benefit or Child Care Subsidy, or owe child support or have outstanding debts as a former Centrelink customer, your tax return could be affected.
• Exemptions may apply if your repayments have been paused due to a disaster, emergency, or a formal review is pending.
• Any amount taken from your refund will show as a ‘Credit Offset to Centrelink’ on your ATO Notice of Assessment, and you’ll receive a letter if you’re a former recipient with an offset applied.

Have you ever had your tax refund reduced because of a Centrelink debt? How did you handle it? Do you have any tips for other members? Share your experiences and advice in the comments below!

 

[Suzanne rose]

If you owe centrelink money then I think it's only fair it gets paid back from your tax refund

 

[Veggiepatch]

The Child Support Agency also puts their grubby hands on your ATO refund, even though you nominate the refund to go directly to you.

While under the broad umbrella of Services Australia, the CSA has no direct connection to ATO or Centrelink, except to leech any money you get from the ATO and Centrelink. They would probably do the same to any refund from Medicare, but I have no experience in this instance, just the other two mentioned.

The CSA is above the law in this respect. No wonder they have no "walk in" offices, otherwise they would be burnt to the ground!