Feeling like you’re falling behind on your tax obligations can be overwhelming. Combine this with general interest charges and penalties, and the original debt can feel like a mountain that only keeps growing. If you’ve been searching for “ATO debt forgiveness”, then you are more than likely hoping that the Australian Taxation Office will write off what you owe.
The ATO rarely forgives tax debt outright, but there are a variety of legitimate pathways that allow Australians to reduce, restructure, or, in specific circumstances, have part of their tax liability released. For businesses, these pathways can include formal business restructuring, voluntary administration, or other business insolvency processes that involve a binding arrangement with creditors that compromises tax debt.
In this BRI Ferrier guide, we will explain to you exactly how ATO debt relief works in Australia, who qualifies for each option, and what your next steps look like when informal payment arrangements aren’t enough to clear the slate. Understanding the relief options available is the first step toward regaining financial control.
What Is ATO Debt Forgiveness?
There is a common misconception in Australia that “ATO debt forgiveness” is a single, formal program that you can apply for. Instead, ATO debt forgiveness relates to a group of separate mechanisms that can reduce, defer, or, in limited circumstances, permanently release a tax debt.
Broadly, these mechanisms fall into four different categories:
- Release from tax debt on serious hardship grounds: Under Section 340 of Schedule 1 to the Taxation Administration Act 1953. This is the closest thing to true “forgiveness” in tax law. However, this is only available to individuals (not companies), and only when paying the debt would cause serious hardship.
- Remission of penalties and general interest charge (GIC): This is where the ATO agrees to reduce or remove the interest and penalty components of a debt, leaving only the primary tax payable. This is the most commonly granted form of relief.
- Write-off as uneconomical to pursue: This is an internal ATO decision to stop active recovery action on a debt. The liability isn’t legally extinguished, and the ATO retains the right to reactivate the debt if your circumstances improve.
- Debt extinguishment through formal insolvency: This includes bankruptcy, company liquidation, Small Business Restructuring (SBR), and personal debt agreements. These statutory processes can permanently release tax debt as part of a binding, court-recognised arrangement with all creditors.
So what pathway applies to you? Well, this depends on several factors. These include: whether the debt sits with you personally or with a company, the size of the debt, your broader solvency position, and whether the ATO has already commenced recovery action such as issuing a Director Penalty Notice (DPN), a garnishee notice, or a statutory demand.
It’s important to know where you sit, as choosing the incorrect pathway or delaying the decision can make options like remission or release significantly harder to secure.
In general, debt forgiveness is rare. Contacting a financial professional to explore formal insolvency is a recommended step to take if you are struggling with personal or company tax debt.
Does the ATO Really Forgive Tax Debt?
No, the Commissioner of Taxation has a statutory duty to collect tax revenue, and the ATO is bound by principles of equity between taxpayers, meaning it cannot waive a debt simply because someone is struggling to pay.
The ATO can agree to release individuals from tax debt under the following conditions:
- Serious hardship provisions
- Remit interest
- Penalties in specific circumstances
- When recovery is uneconomical
There is a high level of evidence required for the above four.
Permanent debt erasure most commonly occurs through formal insolvency. It can be through the liquidation of a company or if an individual is declared bankrupt. Any unsecured tax debts are treated like any other unsecured creditor claim, and the remaining unpaid balance is generally extinguished by operation of law.
At BRI Ferrier, we often recommend a Small Business Restructuring (SBR) plan or a personal debt agreement, as these options can achieve a similar outcome through a binding arrangement with creditors.
Can I Apply to the ATO for Tax Debt Forgiveness?
There isn’t a specific “debt forgiveness” application. It all comes down to specific circumstances. You can apply for release from tax debt if you are an individual or the trustee of a deceased estate. On the other hand, companies, trusts, and partnerships do not have the right to apply for the release of primary tax debts.
In Australia, here is how each situation is treated:
Individuals
Taxpayers can apply to the ATO as an individual for a release from tax debt, where they have proven that paying it would cause serious hardship. The ATO defines serious hardship as being unable to provide for yourself, your family, or dependants in relation to:
- Food
- Accomodation
- Medical Treatment
- Education
- Clothing
For tax debts of $10,000 or more, you must lodge the formal Application for Release (form NAT 15080). For debts under $10,000, you can request release by contacting the ATO directly on 13 11 42.
It is important to know that not all tax debts are eligible for release. Income tax, Medicare levy, and PAYG income instalments are generally eligible. GST, PAYG, withholding for employees, and the superannuation guarantee charge are not.
If you cannot establish serious hardship, an individual may still be able to negotiate remission of penalties and interest, enter into a payment plan, or use a personal insolvency procedure, such as a Debt Agreement or Personal Insolvency Agreement (PIA), to extinguish the debt.
Companies and Other Entities
Companies, trusts, and partnerships cannot apply for release from primary tax debt. The ATO has no discretionary power to forgive a company’s underlying tax liability outside of formal insolvency.
What’s available at the company level?
- Remission of penalties and general interest charge (GIC), particularly where the debt arose from circumstances outside the company’s control?
- A payment arrangement to spread the debt over a manageable period.
- Formal insolvency, including Small Business Restructuring (SBR) or Voluntary Administration, where the ATO may agree to accept less than the full debt as part of a binding arrangement with creditors.
In the formal insolvency process, the ATO is generally an active and pragmatic creditor and typically engages constructively with proposals put forward by a registered insolvency practitioner on the company’s behalf.
Company Directors
Directors can request remission of penalties and interest relating to their company’s tax debts, usually through their accountant or advisor.
Where a director is personally liable under a Director Penalty Notice for unpaid PAYG withholding, GST, or superannuation guarantee charge, release is not available. The director penalty is structured as an amount equal to the tax debt rather than the tax debt itself, which puts it outside the ATO’s release powers.
If you are personally liable under a DPN and cannot pay, the realistic options are to negotiate a payment arrangement with the ATO or to consider a personal insolvency procedure, such as bankruptcy or a Personal Insolvency Agreement.
Alternative to ATO Debt Forgiveness
It is just a fact that the release of primary tax is rare; luckily, there are other avenues for debt forgiveness to explore. The right option depends on whether the debt is with a person or an entity, the size of the liability, and the stage of the ATO recovery action.
Payment Arrangement
A payment plan lets you repay the debt over time in agreed instalments. It is not forgiveness, but it pauses active recovery. GIC continues to accrue unless separately remitted.
Remission of GIC and Penalties
Both individuals and companies can request remission of the general interest charge and penalties. Approval is more likely where the debt arose from circumstances beyond your control, and you have a credible plan to clear the primary debt.
Small Business Restructuring (SBR)
Eligible incorporated small businesses (with total liabilities under $1 million) can restructure debts through a simplified, debtor-in-possession process. If creditors approve the plan, the company pays an agreed amount over up to three years, and the unsecured balance, including ATO, is released.
Voluntary Administration
An independent administrator takes control of the company and proposes a Deed of Company Arrangement (DOCA) to creditors. A DOCA can compromise tax debt as part of a binding settlement, often allowing the business to continue trading.
Liquidation
Liquidation winds up a non-viable company. Unsecured tax debts are handled through the process, and any unpaid balance is extinguished upon deregistration. Personal liability under a Director Penalty Notice is not extinguished and survives the company.
Personal Insolvency
Individuals have three formal options when it comes to personal insolvency:
- Bankruptcy: This releases you from most unsecured debts, including ATO debt, after a defined period.
- Debt Agreement (Part IX): Allows repayment of a portion of debts, including ATO debt, after a defined period.
- Personal Insolvency Agreement (PIA, Part X): Offers more flexible, negotiated terms for higher-value debts.
Each carries consequences for credit, certain employment, and asset ownership, so it should be considered alongside a registered trustee before any application is made.
Which Tax Debts Can Be Forgiven?
The ATO can only release individuals from certain types of tax debt. Companies, trusts, and partnerships are not eligible to apply.
| Eligible for ATO Release | Not Eligible for ATO Release |
| Income tax | GST |
| Medicare levy and levy surcharge | PAYG withholding (for employees) |
| Fringe Benefits Tax (FBT) and FBT instalments | Director Penalty Notice (DPN) liabilities |
| PAYG income instalments | Superannuation Guarantee Charge (SGC) |
| Taxes on dividends, interest and royalties | Division 293 liabilities |
| Managed investment trust withholding tax | Excess Contribution Tax (ECT) |
| Penalties and interest associated with the above |
For ineligible debts, the practical pathways are remission of GIC and penalties, a payment arrangement, or formal insolvency. Director Penalty Notice liabilities, in particular, cannot be released by the ATO and survive a company’s wind-up, which is why early advice is critical for directors who have received a DPN.
How to Apply for Release from Tax Debt
The release application process is straightforward but evidence-heavy. The ATO will not consider an application unless your tax affairs are up to date and your documents clearly demonstrate serious hardship.
Step 1: Bring Your Lodgements Up to Date
You must lodge all outstanding tax returns and activity statements before you can apply. This is so the ATO has a clear picture of your liability. During this period, you must also finalise any unresolved disputes, objections, or insurance and damage claims.
Step 2: Check Your Eligibility
Use the ATO’s online Debt release tool to confirm your situation meets the threshold and to access the application form.
Step 3: Lodging the Application
Two different processes depend on your specific circumstances.
- For tax debts of $10,000 or more, complete the Application for Release form (NAT 15080) and submit it by post with supporting documents.
- For tax debts under $10,000, you can request release by phoning the ATO on 13 11 42 without lodging the formal form.
Step 4: Provide Supporting Evidence
The ATO assesses serious hardship against your household’s fortnightly income and expenditure, plus your assets and liabilities. Supporting documents should be dated within four weeks of submission and may include:
- Medical certificates verifying inability to work
- Bank notices, overdraft calls, or mortgage default notices
- Letters from charitable organisations confirming unemployment or reliance on assistance
- Repossession notices for essential items
- Disconnection notices for essential services such as electricity, gas, or water
Step 5: After Lodging
The ATO reviews the application against PS LA 2011/17 and may contact you for additional information. Recovery action is generally deferred while the application is under review, but the general interest charge (GIC) will continue to accrue on the outstanding debt. A decision may be a full release, a partial release, or a refusal.
If your application is refused, you can seek a review of the decision through the Administrative Review Tribunal (ART), which replaced the AAT in October 2024.
When to Seek Professional Advice: BRI Ferrier Can Help
Most ATO debt issues become significantly harder and more expensive, the longer they are left unaddressed and if you go at it alone. Once recovery action has commenced, the range of available options narrows quickly. Engaging an experienced registered insolvency practitioner early usually means more outcomes are still available to you.
You should consider professional advice if any of the following scenarios apply to you:
- You have received a Director Penalty Notice (DPN), garnishee notice, or statutory demand from the ATO.
- The ATO has commenced legal recovery action or filed a winding-up application against your company.
- Your company’s tax debts are unlikely to be paid within a reasonable timeframe.
- You have entered or defaulted on multiple ATO payment plans.
- You have unpaid PAYG withholding, GST, or superannuation guarantee obligations and are concerned about personal liability.
- You are an individual whose tax debt has reached a level you cannot realistically repay from your current income.
How The Team at BRI Ferrier Can Help
BRI Ferrier is a trusted Australian and New Zealand firm specialising in restructuring, insolvency, and forensic accounting. We are based in Sydney, Melbourne, Brisbane, Perth, Cairns, and Townsville. Our professional team of registered liquidators and registered trustees work closely with directors, business owners, and individuals facing tax debt to assess viable options and put a clear strategy in place, often in situations where time-sensitive ATO action is already underway.
At BRI Ferrier, we have vast experience in advising individuals and companies alike on:
- Safe Harbour and Informal Turnaround: To help protect directors and stabilise a financially distressed business before insolvency becomes unavoidable.
- Small Business Restructuring (SBR): For eligible incorporated small businesses, allowing directors to remain in control while compromising debts (including ATO debt) under a creditor-approved plan.
- Voluntary Administration and Deeds of Company Arrangement (DOCA): To help restructure the unsustainable tax and creditor debts and, where possible, return the business to solvent trading.
- Liquidation: Is where a company no longer finds itself viable, helping to manage its affairs in an orderly way that minimises further exposure for directors.
We work with financiers, solicitors, accountants and creditors to address the needs of all stakeholders when businesses face financial challenges.
Whoever you are, wherever you are, whatever your challenge, we look forward to hearing from you. Contact us today to get back on track.
