What happens to tax debt when a company is liquidated?
Short answer
The company's tax debt ends with the company. In liquidation the ATO is an unsecured creditor: it lodges a claim, shares in whatever is left after the liquidator's costs and employee entitlements, and writes off the rest at deregistration. What does not end is anything that has already become personal to a director. Our guide to liquidation and ATO debt has the full picture.
What the ATO gets from the liquidation
Once a liquidator is appointed, the ATO cannot garnishee the company, sue it or issue a statutory demand. It becomes one creditor among many. The liquidator sells what the company owns and pays out in a fixed order: the liquidator's own costs, then employee wages, super and leave, then unsecured creditors including the ATO and suppliers, all sharing the balance pro rata. For most small companies that balance is small or nil, which is why the ATO's usual recovery in liquidation is little or nothing.
Two things still happen in the background. The ATO offsets any company refund or credit against the debt, and the liquidator lodges any returns and BAS that were outstanding, which can increase the amount the ATO claims. Neither changes the basic position: it is the company's debt, and the company is going.
What ends, and what follows you
| Debt | After liquidation |
|---|---|
| Company income tax, GST, PAYG withholding, SGC, GIC and penalties owed by the company | Ends with the company. Not collectable from you unless it has become personal through one of the routes below. |
| Director penalty that has already crystallised (21 days passed on a notice) | Yours. Liquidation does not remove it. |
| Lockdown director penalty (BAS lodged more than 3 months late, SGC statement lodged late) | Yours, and the ATO can issue the notice after the liquidator is appointed. |
| Non-lockdown director penalty, liquidation started within 21 days of the notice | Remitted. |
| Personal guarantees, insolvent trading claims, unfair preference indemnity | Yours, pursued by the creditor or the liquidator. |
The unfair preference point surprises people. If the company paid the ATO in the 6 months before liquidation while it was insolvent, the liquidator can claw that payment back. When the clawed-back amount was PAYG withholding or super, the ATO can then recover the same amount from the directors under an indemnity. Company director liability covers each route in more detail.
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The timing that decides it
For PAYG withholding, GST and super, the outcome usually turns on one date. A non-lockdown director penalty notice gives you 21 days from the date it was posted to your ASIC address. Appoint a liquidator inside that window and the penalty is remitted. Appoint one on day 22 and the same debt is yours for life, even though the company is gone either way.
Lodgement history sets the other half. If the BAS and SGC statements behind the debt were lodged on time, or within 3 months for BAS, liquidation can protect you. If they were not, it cannot, and the only thing that removes the penalty is paying it. Before you decide anything, check whether a smaller, quicker process would do the same job: SBR versus liquidation compares them, and can I close a company that owes the ATO covers the routes that do not work.
What to do next
- List the company's ATO debts by type and note, for each BAS and SGC period, whether it was lodged on time.
- Check whether any director penalty notice has been posted to your ASIC address and count 21 days from its date.
- Ask a registered liquidator for a written view on what would end with the company and what would stay with you before appointing anyone.
Related questions
Can the ATO still chase me after the company is deregistered?
Not for the company's own debt. It can chase you for any director penalty that had crystallised or was lockdown, for amounts you personally guaranteed, and for any insolvent trading or preference claim the liquidator assigned or pursued. Those are personal debts and deregistration of the company does not affect them.
Does the ATO vote for or against liquidation?
In a creditors' voluntary liquidation the directors and shareholders appoint the liquidator; creditors do not vote on whether it happens. The ATO can itself apply to court to wind the company up, usually after an unpaid statutory demand. Where it is the largest creditor it may also vote on the liquidator's fees and on any committee of inspection.
Thinking about liquidating a company with ATO debt?
A specialist can tell you what would end and what would follow you. Free and confidential.
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