Does Bankruptcy Clear Tax Debt in Australia?

Bankruptcy is one of the most effective ways to clear personal tax debt in Australia. When someone declares bankruptcy, all their unsecured debts such as unpaid taxes are cleared and no longer due to be paid back. All monies owing to the Australian Taxation Office for taxes owing are caught by your bankruptcy. The Australian Taxation Office (ATO) is regarded as an unsecured creditor in a bankruptcy and has the same rights as other creditors to participate in your bankruptcy and make a claim against the assets of your bankruptcy for any outstanding tax debt you may have. If there are no assets in your bankruptcy, the ATO will write off its debt.

Does Bankruptcy Clear ATO Debt?

Tax owing includes monies you owe to the Tax Office personally and taxes you may also be liable for due to your company not paying taxes owing.

What Happens If You Don’t File Tax Returns?

The only thing to watch out for is if you have outstanding tax returns to lodge. If you do not lodge your outstanding returns the ATO can have you prosecuted through the court for non-lodgement and if this happens you may receive a court fine. Court fines are not a provable debt in bankruptcy, and if you should receive a fine, you will have to pay it. The solution is to get your outstanding returns lodged as soon as possible. Remember you do not have to worry about monies owing to the Tax Office as they will be caught by your bankruptcy.

Going Bankrupt To Clear Debt

However going bankrupt to clear tax debt should only be used as a last resort measure and should not be relied on solely to resolve tax debt issues since there are other options available including payment plans and negotiations with the ATO that may provide a better outcome for taxpayers in terms of being able to keep some assets or pay off debt more gradually over time.

Tax returns do not need to be up to date when you file for bankruptcy. If you subsequently lodge a tax return that shows a tax liability from prior to when you became bankrupt, that debt will be included in your bankruptcy.

We find a lot of people file for bankruptcy to get protection from their creditors and then with no creditor’s phone calls to worry about, get in and lodge their outstanding tax returns.

Unpaid Taxes and Bankruptcy

Taxes are a necessary part of life, and when they’re not paid in full or on time, the Australian Taxation Office (ATO) may take legal action against you. One of the most serious consequences of unpaid taxes can be bankruptcy notice from the ATO. If you are notified of bankruptcy by the ATO, it is crucial to either settle your tax debt or establish a payment arrangement within 21 days. Failing to do so may result in the tax authorities initiating bankruptcy proceedings against you. Normally, the ATO doesn’t aim to make individuals bankrupt if they can repay their debts within a specified period. However, if you are unable to make payments or the ATO determines that full repayment is not possible, they may take legal action for bankruptcy.

Questions About Tax Debt And Bankruptcy?

We trust we have assisted you, but if you need further detail about ato bankruptcy have a look at our Life During Bankruptcy – Your Tax Debt article for more information. We are here to help. If you have any questions please give us a call on 1300 794 492 or email:

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