WHAT YOU NEED TO KNOW

If you’re facing bankruptcy, you may be wondering how tax refunds are treated in such a situation.

Here are some general guidelines on how the Australian Taxation Office (ATO) deals with these situations. However, you should always get professional advice for your particular situation.
If the ATO is a creditor in the bankrupt estate, it can keep any tax refunds to satisfy the tax debt owed during the bankruptcy period. However, once the bankruptcy is discharged it can no longer keep any tax refunds to satisfy the tax debt owed before the bankruptcy.
If the refund claimed by the ATO was for a post-bankruptcy tax period, the amount will also be included as income in that assessment period.
If the ATO does not claim the refund, and it relates to a pre-bankruptcy tax period, the full amount vests in the trustee.
If the refund relates to both a pre-bankruptcy and post post-bankruptcy tax period:

  • a pro rata amount will vest in the trustee for the pre-bankruptcy portion
  • the post-bankruptcy portion of the refund is included as income in the relevant contribution assessment period.

Example: If your estate filed for bankruptcy on 28 March 2011:

  • you need to pay the pre-bankruptcy portion to the trustee. In this case, it’s 271 days (1 July 2010 to 28 March 2011) or 74.25% of the year.
  • you can keep the post-bankruptcy portion, which is 94 days (29 March 2011 to 30 June 2011) or 25.75% of the year. This will treated as income during this assessment period.

For more information on corporate insolvency review the resources below or contact us today.

PERSONAL INSOLVENCY RESOURCES

PERSONAL INSOLVENCY OVERVIEW

From sudden employment and over-reliance on credit to relationship breakdowns and ill health, there are many reasons why people suffer financial hardship and experience unmanageable debt. If an individual cannot pay their debts they may and haven’t been able to reach an agreement with creditors, they may declare themselves bankrupt. Bankruptcy can either be voluntary or involuntary.

DECLARING BANKRUPTCY – WHAT’S INVOLVED?

Declaring bankruptcy voluntarily in Australia is a straight forward process and involves completing two separate forms and lodging them with the Australian Financial and Security Authority. This article outlines declaring bankruptcy in four step.

CANCELATION OR ANNULMENT OF BANKRUPTCY

Annulment is effectively the cancellation of a bankruptcy. This article outlines the three ways a bankruptcy may be annulled.

ASSETS, DEBTS AND INCOME IN BANKRUPTCY

Many people do not know what will happen to their income, debts and assets once they become bankrupt. To assist in advising those on the brink of personal insolvency, here is a broad overview of the bankrupt’s entitlement to hold on to certain assets and income during the period of bankruptcy.

BANKRUPTCY AND EMPLOYMENT

While bankruptcy doesn’t directly affect your employment, it may have consequences if you hold various licences or qualifications including building, property management, liquor and financial brokerage licences.

BANKRUPTCY AND HOUSES

If an individual is made bankrupt, it is not necessarily the case that their house will be sold from under them. Given that in most bankruptcy cases we are dealing with the family home, it pays to have knowledge in this field to provide the best outcome for your client and hopefully “save the house”.

DISCHARGE OR FINALISATION OF BANKRUPTCY

The discharge of bankruptcy means that the individual is no longer bankrupt.
The date of discharge of bankruptcy will vary depending on the type of bankruptcy.

PERSONAL INSOLVENCY LEGAL ACTION

There are many ways a creditor can seek to recover payment of a debt from an individual who cannot, or refuses to, pay that debt. This article covers the rights and obligations of individuals facing debt collection and exposed to legal action and enforcement.

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