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Australia Bankruptcy & Insolvency Tax Guide

Australian tax rules for bankruptcy and insolvency. The guide covers: the tax debt in bankruptcy — the 'tax debt' (the 'unpaid income tax', the 'unpaid GST', the 'unpaid PAYG withholding', the 'unpaid super guarantee charge') is the 'provable debt' in the 'bankruptcy' — the 'ATO is the 'creditor' in the 'bankruptcy proceeding'; the 'bankruptcy' 'discharges the tax debt' (the 'tax debt is 'wiped out' at the 'discharge from the bankruptcy' — the 'Section 82 of the Bankruptcy Act 1966'); the 'tax debt' that is 'incurred by the 'fraud' or the 'evasion' is NOT 'discharged' in the 'bankruptcy'; the trustee in bankruptcy — the 'trustee in bankruptcy' (the 'registered trustee' or the 'Australian Financial Security Authority (the 'AFSA')') 'administers the bankruptcy estate'; the 'trustee' is 'responsible for the tax returns of the bankrupt estate' — the 'trustee lodges the 'bankrupt's tax returns' for the 'period of the bankruptcy'; the 'trustee' 'realises the assets' and 'pays the creditors' (including the 'ATO'); the 'trustee' may 'sell the assets of the bankrupt' — the 'trustee is 'liable for the CGT on the sale of the assets' (the 'trustee includes the capital gain in the 'bankrupt estate's tax return''); the write-off of the tax debt by the ATO — the 'ATO may 'write off the tax debt' in the 'case of the 'insolvency' or the 'bankruptcy''; the 'ATO writes off the tax debt' when the 'debt is 'not recoverable at the law' (the 'debt is 'statute-barred' — the '6-year limitation period' for the 'ATO debt recovery'); the 'write-off of the tax debt' is 'NOT the assessable income' for the 'bankrupt' (the 'forgiveness of the tax debt is NOT the 'ordinary income''); the tax filing by the bankrupt individual — the 'bankrupt individual' must 'continue to lodge the tax returns' (the 'personal tax returns') for the 'income earned after the bankruptcy'; the 'bankrupt's income' (the 'salary', the 'business income', the 'investment income') is 'subject to the regular tax'; the 'bankrupt may be 'required to pay the 'income contributions' (the 'contributions to the bankruptcy estate' from the 'income above the threshold' — approximately $65,000 per year for the '2025-26 year'); the insolvency of the company (the 'liquidation') — the 'company in the liquidation' (the 'insolvent company') is 'administered by the 'liquidator''; the 'liquidator' is 'responsible for the company's tax returns' and the 'payment of the creditors'; the 'ATO is the 'priority creditor' for the 'unpaid PAYG withholding' and the 'unpaid super guarantee' (the 'ATO priority claim' under the 'Corporations Act 2001'); the 'tax losses of the company in the liquidation' are 'lost' (the 'tax losses cannot be 'transferred' to the 'shareholders'').

Tax Debt in Bankruptcy

  • ATO as creditor: The 'tax debt is the 'provable debt' in the 'bankruptcy'.
  • Discharge of debt: The 'tax debt is 'discharged' at the 'bankruptcy discharge' (the '3 years and 1 day' for the 'first-time bankrupt').
  • Fraud exception: The 'tax debt from the 'fraud' or the 'evasion' is NOT 'discharged'.

For the tax debt collection and the ATO recovery, see our Tax Debt Collection Guide →.

Trustee & Liquidator

  • Trustee in bankruptcy: The 'trustee lodges the tax returns' for the 'bankrupt estate' and 'realises the assets'.
  • Liquidator for company: The 'liquidator is 'responsible for the company's tax returns' in the 'liquidation'.
  • ATO priority: The 'ATO has the 'priority claim' for the 'unpaid PAYG and the super guarantee'.

For the closing business and the company deregistration, see our Closing a Business Guide →.