General guidelines

If the Australian Taxation Office (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 would 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-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 2019 to 28 March 2020) or 74.25% of the year.
  • You can keep the post-bankruptcy portion, which is 94 days (29 March 2020 to 30 June 2020) or 25.75% of the year. This will be treated as income during this assessment period.

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