Liquidating a company to avoid tax
Here, we outline what usually happens to tax debt in the event of liquidation, and the circumstances under which tax debt can be recovered from company directors by the ATO.In 1993 the law was changed to revoke the priority repayment of tax liabilities, and so in most cases today tax debts are usually treated like any other debt owed to unsecured creditors.Liquidation involves the orderly winding up of your company, and distribution of assets to creditors and shareholders.
Generally, after paying for the costs of the liquidation, the liquidator is required to first distribute the proceeds to priority creditors before paying unsecured creditors.
Once a tax clearance certificate is obtained from the ATO, any remaining proceeds can be distributed to the shareholders, if applicable.
That means you as the company director cannot avoid a personal obligation to repay this outstanding tax debt even though your company has entered the liquidation phase, and the ATO can pursue you, personally, for tax debt of this type.
This applies to any PAYG withhold debt that is left unreported three months after it first became due, and SGC amounts that are unpaid and unreported three months after the lodgement due date for any SGC statement.
For company directors facing liquidation that has outstanding tax debt, a key concern is the lockdown or limited remission rule.
If your company has outstanding PAYG withholding or SGC amounts and you have received a director penalty notice from the ATO, putting your company into liquidation before the 21 days expire (or appointing an administrator or repaying the debt in full) will remit the notice.