Is your tax refund at risk? One woman’s fight reveals flaws in the ATO’s refund system

For most Australians, a tax refund can mean a bit of breathing room after a long year. But for one taxpayer, it turned into a frustrating battle with the Australian Taxation Office (ATO)—and her persistence has now uncovered deeper problems that could affect thousands more.

When a refund disappears without warning

In 2024, Queensland woman Charmaine McNair expected a refund of $10,771 after lodging her tax return. Instead, only $860 arrived.

The ATO had automatically offset $4,660 to repay old Centrelink family tax benefit overpayments, reducing her refund without prior warning.

A fight that lasted nearly a year

McNair’s first appeal was lodged in November 2024 with the Administrative Review Tribunal’s social services division, but it was dismissed because the offset wasn’t considered a ‘reviewable decision’.

Undeterred, she filed again in February 2025—this time through the tribunal’s taxation jurisdiction.

In June 2025, the Commissioner of Taxation refunded the $4,660, expecting her to withdraw the application. But McNair refused, determined that ‘others are not faced with the same difficulties’ she had experienced.

By October 2025, the tribunal dismissed her second application, again citing a lack of jurisdiction. However, its president acknowledged her case had exposed ‘systemic issues’ with the way the ATO handles automated offsets.

A bigger problem in the system

According to the tribunal, the ATO’s system for recouping Centrelink debts does not account for personal situations—such as existing repayment plans or approved pauses.

It warned that this oversight could cause hardship for Australians relying on refunds to pay for essentials.

Court documents noted: ‘The failure to take the recipient’s circumstances into account may constitute a jurisdictional error which enlivens the power of the Commissioner to reverse the offset.’

The tribunal also pointed out that the ATO’s notice of assessment did not inform taxpayers about their rights to appeal or request a review—another gap that left people in the dark about their options.

Change sparked by one person’s persistence

In response, the tribunal’s president requested that the Administrative Review Council conduct a formal inquiry into the offsetting system.

The ATO has since published clearer guidance on its website about how to request a refund and where to go for review.

The court’s final note read: ‘McNair’s purpose in continuing with this application has been achieved. Her actions have meant there have been significant changes to the offsetting mechanism, and appeal rights arising from such decisions have been clarified and published.’

What to do if your refund is reduced

If you ever find your refund smaller than expected:

• Check your Notice of Assessment for any mention of offsets or debts.

• Visit the ATO website for details on how to appeal or request a reversal.

• Call the ATO or Centrelink to confirm whether a repayment arrangement exists.

• Explain financial hardship—the ATO can sometimes pause or adjust payments.

• Seek free help from the National Debt Helpline or a local community legal centre.

Why this matters for older Australians

For retirees and those living on fixed incomes, tax refunds are more than just numbers on a page—they can mean groceries, medical bills, or help with utilities.

McNair’s case is a reminder that speaking up can lead to change, even against powerful systems.

Read next: Shocking tax return mistake traps Aussies in massive ATO debt

Key Takeaways

• Charmaine McNair’s case, which ran from November 2024 to October 2025, exposed systemic flaws in the ATO’s automated offset system for recovering Centrelink debts.
• The ATO withheld $4,660 from her $10,771 tax refund to repay family tax benefit overpayments, leaving her with only $860.
• The tribunal noted that the process ignored personal circumstances and ‘may constitute a jurisdictional error’, leading to financial hardship for vulnerable Australians.
• Following the case, the ATO updated its website to include clearer refund and appeal information, and the Administrative Review Council launched an inquiry into the system.

Have you ever had your tax refund used to repay an old Centrelink debt? Did you know you could challenge it? Share your experience in the comments below—your story might help others avoid the same frustration.