The end of financial year can be a stressful and confusing time, which might be increased because of bankruptcy obligations. This fact sheet will give the information you need to know how Tax Obligations, Tax Returns, Tax Liabilities are affected because of bankruptcy.
Please read this sheet carefully and if you have any other queries or questions please contact our office to speak with one of our experienced professional staff members.
Your tax obligations during Bankruptcy
While you are bankrupt, you are still required to meet your tax obligations when they fall due. The Trustee will not complete your tax returns on your behalf. If you require assistance with your tax return it is recommended that you contact the Australian Taxation Office (“ATO”), or an accountant or registered tax agent.
What vests in the Trustee and what can you keep?
Refunds for income that you earned prior to your bankruptcy will be an asset of the bankrupt estate, which needs to be paid to the Trustee.
Refunds for income earned after your date of bankruptcy will be assessed as income in your relevant contribution assessment period.
I was supposed to be paid a tax refund, but did not receive it.
If you have a debt owing to the ATO or a Commonwealth Agency, the ATO will be able to retain your refunds to reduce the liability you owe.
It is important to note that once you have been discharged from Bankruptcy, you will be cleared of all extinguishable debts, i.e. debts you do not have a liability to pay after the bankruptcy ends, including most ATO debts. After your discharge from bankruptcy the tax refunds will be paid to you. However, if the debt is a statutory order, it may not be extinguishable and therefore, you may still be liable.
You are obligated to inform your Trustee whenever you receive a
Notice of Assessment from the ATO or funds from a tax return.
It is important that you do not spend your tax refund until our office
makes an assessment and informs you if payment is required.
If you have outstanding lodgements, you are encouraged to lodge these as soon as
possible to ensure all the debts to the ATO are included and extinguished after your bankruptcy.
What to do now?
- Make sure that all your tax returns are completed and submitted.
- Seek advice from the ATO, an accountant or registered tax agent, if necessary.
- Any Notice of Assessment received from the ATO during bankruptcy must be provided to the Trustee.
- Any Tax Return received during bankruptcy, DO NOT SPEND. Contact the Trustee’s office as soon as possible so you can be informed of the portion you can keep and the portion to be paid to the bankrupt estate.
Shaw Gidley are experts in restructuring, turnaround and insolvency and provide free initial advice on these matters. Please contact our offices on (02) 4908 4444 or (02) 6580 0400.