His exempt overseas income became taxable when COVID shut the border. The Tribunal released the full $148,582, after going through the household line by line.
His overseas income lost its tax exemption when COVID shut the border and the work came home. He set aside money for the tax, but his contract lapsed and the savings went on living costs. A $148,582 debt was beyond him.
That is the bind serious hardship relief exists for. But under Division 340 it is never automatic, and the test is unforgiving in its detail. Prasser and Commissioner of Taxation [2026] ARTA 1053.
Background facts
Division 340 of Schedule 1 to the Taxation Administration Act 1953 lets the Commissioner release an individual from a tax debt where paying it would cause serious hardship.
He is an aviation consultant. The ATO had confirmed his Asian Development Bank income would be tax-free if he worked overseas [5]. He won the contract, then COVID shut the border before his first payment [8]. Working from home, he lost the exemption [11].
He earned $156,259 and $226,232 over two years [15]. With interest, the debt reached $148,582 [2].
How hardship is tested
Serious hardship does not mean “destitution”. It means serious financial difficulty [31]. It is tested in two stages: would paying the debt cause that hardship, and is it appropriate to release [126]-[127]?
Stage one turns on capacity to repay in a reasonable timeframe, judged across the whole household’s finances [34]-[35]. Reasonable living costs are protected - only discretionary spending counts. So the Tribunal went through the household line by line.
Groceries were reasonable [77]. The argument that 75% of takeaway is non-discretionary because it replaces home cooking failed (groceries were already reasonable) [83]-[84]. School tuition was reasonable for a Catholic family, but the extracurriculars on top were not [90]-[92]. Grooming was allowed in part [102], money wired to a widowed mother-in-law was reasonable [105]-[106], a car air-conditioning repair was not discretionary (air-conditioning being a standard fitment) [121].
That left $519.55 a month [115], not the $3,000 the Commissioner assumed [117]. At $519.55 a month the debt would not clear until 2050, when he would be 78 [119], and a looming $13,991.50 dental bill would absorb the $519.55 [124]-[125]. Stage one was met.
Stage two asks whether release is appropriate. The debt arose from a border closure beyond his control, in a pandemic that hit his industry hard [134], so it was [147].
Takeaways
Serious hardship is not “I cannot afford it”. It is forensic: after reasonable living expenses, can the debt be cleared in a reasonable time? A modest surplus swallowed by unavoidable costs is still hardship.
Two points. First, the statement of financial circumstances must match the bank statements; his did not, and the Tribunal used the statements [50]. Second, hardship and appropriateness are separate hurdles. Clear both, and the debt can go in full - here, all $148,582 [148].
General information only. This note was accurate when written. The law may have changed since and the note is not updated. It is not legal or tax advice, does not take account of your circumstances and must not be relied upon as a substitute for advice on your own matter. If the issue is live for you or your client, email arda@nortonquaytaxlaw.com.au for advice on the current position.