How does the ATO vote on proposals to avoid bankruptcy

If you have an unmanageable tax debt you may wish to consider a proposal to creditors under the Bankruptcy Act 1966 to compromise your debts.  With the most common type of such a proposal being for a Personal Insolvency Agreement.  For any such proposal creditors will get to vote to decide whether or not it gets accepted.  And if you have a large tax debt, then often the outcome of the proposal will depend on how the ATO votes.

ATO’s policy on voting on proposals

The ATO’s advice in respect of how it will vote on proposals to avoid bankruptcy is:

We consider each case on its individual facts; however, in general, we will support an arrangement that:

• has no adverse features.

• can provide the Commonwealth with no lesser proportion of the provable debt within a reasonable period than would occur under a bankruptcy.

In assessing the above matters the ATO considers reports provided by a Trustee who is involved in putting forward such a proposal.  The ATO considers it is important that Trustees prepare detailed and comprehensive reports regarding a debtor’s circumstances, the proposal put forward and how the proposal will impact creditors.

The ATO will also consider a debtor’s historical compliance history (including timing of lodgements) and for debtors who have incurred large tax debts over a period of time in which they have also not made lodgements it will be more difficult to get the ATO to accept a proposal to compromise a tax debt.

Our experience with ATO and voting on proposals

In our experience, we have found that the ATO will be supportive of proposals which fit within their guidelines.  However, additionally, the ATO will generally want more than a nominal return on their debt even if this proposed return is better than what would be received in a bankruptcy.

We have also found (as per their policy) that the ATO is much more supportive of proposals of taxpayers with a good compliance history, who have for some (possibly unforeseen) reason encountered hard times which has resulted in an unmanageable tax debt.

Contact us for advice and assistance

If you have a tax debt and you are considering your options there is no time better than now to get advice about what you can do, so please contact Pearce & Heers at our Brisbane or Gold Coast offices for an initial obligation-free consultation.