How do I apply for release from a tax debt?

Check you are eligible before you start

Release is only available to an individual, including a sole trader, or to the trustee of a deceased estate. It only covers certain debts:

• Income tax, PAYG instalments, FBT and FBT instalments, the Medicare levy and surcharge, and some withholding taxes on dividends, interest and royalties.
• Interest and penalties attached to those debts.

It does not cover GST, PAYG withholding, the super guarantee charge, Division 293 tax, excess contributions tax or director penalty notices. If your debt is mostly BAS, read can GST or BAS debt be released before spending time on an application.

You also need to meet the serious hardship test: paying would leave you unable to afford food, accommodation, clothing, medical treatment or education. See what counts as serious hardship.

The application, step by step

1. Lodge everything outstanding. The ATO will not decide an application until it knows the total amount you owe. Unlodged returns are the most common reason an application stalls.
2. Resolve any disputes first. If you are objecting to an assessment or have a compensation claim on foot, the ATO waits for that to finish.
3. Run the debt release tool on ato.gov.au. It asks about your structure, debt types, income and assets, and tells you whether an application is appropriate or whether a payment plan or deferral fits better. You can open the application form from inside the tool.
4. Complete the Application for release (NAT 15080). Answer every question. Include a fortnightly income and expenses statement for the household, a list of assets and liabilities, and a short explanation of how the debt arose and what changed.
5. Attach evidence, not originals. Bank statements, payslips or Centrelink statements, rent or mortgage statements, medical letters, separation or court documents. The ATO asks you not to send original documents.
6. Sign, date, keep a copy and post it to the address on the form.

The ATO's form page notes it is for debts of $10,000 or more in certain circumstances and that people with smaller debts should contact the ATO, so if you owe less, phone 13 11 42 and ask about release before filling in paperwork.

What happens while the ATO decides

Interest keeps accruing until the decision is made, so ask for GIC remission as part of the outcome. The ATO can grant full release, partial release with the balance on a plan, or refuse. If it refuses in whole or in part you can object, and you can reapply later if your circumstances change or you have new material.

Release is permanent. Once granted, the released amount cannot be raised again. It does not affect debts that were never eligible, so a sole trader with both income tax and GST debt should expect the GST to remain and to need a separate payment plan for it.

What to do next

1. Lodge every outstanding return and activity statement, even if you cannot pay them.
2. Run the ATO's debt release tool to confirm your debt types and circumstances qualify.
3. Gather three months of bank statements, income evidence, rent or mortgage statements and anything showing events outside your control.
4. Post the signed form with copies of your evidence, keep your own copy, and diarise a follow-up call to 13 11 42.

More questions: 11 Forgiveness, hardship and negotiation questions answered · Full guide: ATO debt forgiveness