When we take legal action
If you haven't paid the tax you owe and refused to engage with us, we'll try to collect your tax or super debt through firmer actions. If you remain disengaged and do not take steps to manage payment of your debts we may start legal action, and the legal action we take depends on whether the debt is owed by an individual (or sole trader), partnership, trust, superannuation fund or company.
Our firmer actions are to ensure that taxpayers pay the right amount, we maintain a level playing field, and no-one gets an unfair advantage. When we take firmer actions on businesses who refuse to engage with us, we are helping to protect other businesses and employees from being impacted by poor business behaviour.
If you're unable to pay and need additional support, we'll work with you to understand your situation. You should contact us or your registered tax professional about your situation immediately and this ensures we are able to consider your specific circumstances and tailor our approach.
Statement of claim or summons
If you don't work with us to address your debt, we may file a claim or summons with the relevant court of your state or territory. Once the court recognises the debt owed, we may execute on the judgment debt in several ways, including by filing and serving a bankruptcy notice.
If the court imposes interest on the judgment debt, this amount is not tax deductible.
Bankruptcy notice
If you receive a bankruptcy notice, you need to pay your debt or make a payment plan with us within 21 days. If you're unable to do this, we may file a creditor's petition to make you bankrupt.
Bankruptcy is a legal declaration that a person is unable to pay their debts. When a person becomes bankrupt, the bankruptcy trustee takes possession of nearly all their assets and sells them to pay the person's debts.
If you're facing bankruptcy action, but believe you can pay your debts, you should provide us with clear evidence of your ability to pay. We won't seek to bankrupt you if it is clear you're able to pay your debt in a reasonable time.
You can go into bankruptcy voluntarily by filing a debtor's petition with the Australian Financial Security AuthorityExternal Link.
Creditor's petition
A creditor's petition is essentially an application to the Federal Court or Federal Magistrates Court for a sequestration order to declare you bankrupt.
The ATO, and anyone you owe money to, can file a creditor's petition if you have committed an 'act of bankruptcy' (such as failing to comply with a bankruptcy notice) within the preceding 6 months.
If the sequestration order is made, you will become bankrupt and a trustee appointed to manage your estate. This usually involves the sale of the bulk of your assets to pay your creditors, including us.
The court will not issue the order if you can demonstrate you're able to immediately pay all your debts.
Statutory demand
We can issue a statutory demand for payment to a company that has not paid its debts. This requires the company to pay the entire debt or enter into a payment plan with us within 21 days.
If a company doesn't comply with the statutory demand, we may use the non-payment as evidence that the company is insolvent and apply to the Federal Court to wind up the companyExternal Link.
Wind-up action
When a court orders a company to wind up, an appointed official liquidator sells the company's assets and distributes the resulting funds to the company's creditors.
We'll take action to wind up a company if:
- it has failed to pay its debts
- we have not been able to negotiate a suitable payment plan.
These circumstances may indicate that the company is insolvent and there could be a risk to us (and possibly to other creditors) that the debt will not be paid.