What happens in a compromise and how to apply for one
A compromise of tax debt is an agreement between us and a taxpayer to:
- accept a lesser amount to satisfy an undisputed tax debt
- not pursue the balance of an undisputed tax debt.
Strict criteria applies for us to agree to a compromise.
Depending on your circumstances, you will pay the agreed amount as a lump sum or by instalments as part of a payment plan.
When you enter into a compromise, you may be required to abandon rights under tax laws. For example, this could include the right to carry forward revenue and capital losses.
Compromise of tax debt is not a settlement even though it is often referred to as such. A settlement is when we agree with the client on the amount of a disputed tax liability.
Limitations of a compromise
Tax debts are owed to the Commonwealth. We are responsible for collecting tax debts on behalf of the Commonwealth.
While a compromise involves us agreeing not to pursue the balance of a debt, we are unable to validly discharge the remaining balance.
Before we consider a compromise
Before considering a compromise of tax debt, we first consider the options available to help you meet your tax debt obligations, including to:
- remit penalties and additional charges including interest charges
- enter into payment arrangements
- defer the time for payment
- release you from certain tax debts.
We also consider:
- other options for debt recovery, for example
- placing debts on hold
- bankruptcy or liquidation.
- if other parameters have been met, including
- the tax debt is undisputed
- the compromise proposal is not for less than your total net assets
- the compromise will not directly or indirectly impact on the other actions involving you or other parties
- hardship is not the only reason to support the proposal
- alternative collection options would not result in a greater return, such as issuing director penalty notices or bankruptcy
- you do not have a poor compliance history.
When a compromise will not be accepted
We will not consider requests for compromise where:
- the tax debts are subject to dispute
- an application to waive the debt has not been finalised
- an application for release from payment of an income tax or fringe benefits tax debt has not been finalised
- you could lodge a debt agreement under Part IX of the Bankruptcy Act
- within 5 years immediately before the proposal, you have been party to an earlier agreement, bankrupt or party to a Part IX or X arrangement.
How to apply for a compromise
All requests for a compromise of tax debt must be made in writing to the Commissioner of Taxation.
Application forms are available for individuals and businesses.
You can request application forms by:
- writing to us
- phoning our business or individual enquiry line.
You need to complete the relevant application form by answering all questions carefully, completely and accurately. Then return it to:
The Commissioner of Taxation
PO Box 1129
PENRITH NSW 2740
When lodging an application for a compromise, be mindful that you are essentially admitting that:
- you are insolvent
- you may have been insolvent for some time, but now do not see this situation improving
- in some cases, you may have paid out other creditors to our detriment (potentially an act of bankruptcy under the Bankruptcy Act 1966).
You can get more details in PS LA 2011/3 Compromise of undisputed tax-related liabilities and other amounts payable to the Commissioner.
Find out what happens in a compromise of tax debt and how to apply for one.