The 1936 Act allows the total or partial release of a taxpayer or their estate from liability if they can satisfy a Taxation Relief Board that paying the full amount would cause serious hardship (s.265).

The Taxation Relief Board consists of three senior public servants nominated by the federal Treasurer and located in Canberra.

If the amount involved is less than $500, the ATO deals with the matter.

If it is more than $10,000, the application is referred to the Administrative Appeals Tribunal.

The Taxation Relief Board deals with applications without a hearing, but where the Administrative Appeals Tribunal is involved, the applicant is generally asked to appear and is examined under oath.

How to apply

Application forms, which call for the applicant’s income, expenditure, assets and liabilities to be stated in minute detail, are available from ATO offices.

Before an application is dealt with, all returns in arrears must be lodged.

Effect on ATO recovery action

It normally takes some time for the Taxation Relief Board to act (six months is typical), but in the meantime the ATO should take no further legal steps to force payment. If it does, the existence of the hardship relief application should be pointed out.

What the Taxation Relief Board considers

Tax ruling IT 2440, issued in 1987, sets out guidelines that the Taxation Relief Board generally follows in determining whether or not there is serious hardship.

A taxpayer is left with enough to clothe and feed their family before being called upon to pay the ATO. A person with a modest house, motor vehicle and furniture would not necessarily be required to sell those assets, but boats, holiday houses and caravans would be regarded as available.

It is not easy to have tax reduced or cancelled under s.265 (about half the 32,000 applications received in the year to April 1998 were allowed), but the ATO may agree not to force payment until the taxpayer’s finances improve.

Who is it for?

Hardship relief is not for people with substantial assets, even if they will suffer great loss by being forced to sell assets to meet their tax debt. However, past involvement in tax avoidance schemes will not necessarily disqualify an applicant for hardship relief: Powell v Evreniadies 89 ATC 4415.

It may be useful for people like social security recipients who do not have tax deducted from their benefit but are over the tax threshold.

If an employer fails to remit tax payments

PAYG deductions (see below) cannot be dealt with under s.265, so an employer who has failed to remit PAYG instalments to the ATO will have to negotiate some other basis for settlement of the amount owing.