ATO statutory demands, winding up and bankruptcy

An ATO statutory demand is a formal demand, under section 459E of the Corporations Act 2001, that a company pay its tax debt within 21 days of service. If the company doesn't pay, secure or compound the debt, or apply to set the demand aside within those 21 days, the ATO can apply to wind it up, and if it applies within 3 months the court must presume the company is insolvent.

For individuals, the ATO generally gets a court judgment, serves a bankruptcy notice, then petitions for bankruptcy. It calls these steps its final legislative sanction for a tax debt, normally used after other collection measures have failed (PS LA 2011/18 para 16).

What is an ATO statutory demand?

A creditor can serve a statutory demand on a company for a debt that is due and payable and at least the statutory minimum (Corporations Act s 459E(1)). Tax qualifies: once a tax-related liability is due and payable, it is a debt due to the Commonwealth (Taxation Administration Act 1953 (TAA), Sch 1 s 255-5(1)).

The demand must be in writing, in the prescribed form and signed, and require payment within the statutory period after service. Unless it is for a judgment debt, an affidavit verifying the debt must accompany it (s 459E(2) and (3)).

The statutory minimum is $4,000 and the statutory period is 21 days (Corporations Act s 9; Corporations Regulations 2001 reg 5.4.01AAA, as at November 2026).

The ATO can serve a demand by leaving it at, or posting it to, the company's registered office (s 109X(1)(a)). A posted demand is generally treated as served when it would be delivered in the ordinary course of post, unless the contrary is proved (Acts Interpretation Act 1901 s 29). So if your accountant's address is the registered office, the 21 days may be running before you see the demand.

How long do you have to respond to an ATO statutory demand?

Within 21 days after service, the company must do one of three things.

1. Pay the amount demanded.
2. Secure or compound the debt to the ATO's reasonable satisfaction (s 459E(2)(c)). Negotiating doesn't stop the 21 days, so if you are negotiating a payment arrangement, get the ATO's written agreement, before the 21 days end, that it will withdraw the demand or not rely on it.
3. Apply to set it aside. File the application and a supporting affidavit with the court, and serve copies of both on the ATO, all within the 21 days (s 459G(2) and (3)).

The 21-day limit for a set-aside application is strict. The High Court has held that the court's general power to extend time (s 1322(4)(d), then in the Corporations Law) doesn't apply to it (David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43 at [36]). An application filed on day 22, or filed in time but served late, generally can't be saved.

If the company applies in time, the time to comply generally runs until 7 days after the application is finally decided or otherwise disposed of, unless the court extends it (s 459F(2)(a)).

Can you set aside an ATO statutory demand?

If there is a genuine dispute about the existence or amount of the debt, or the company has a genuine offsetting claim, the court works out the undisputed amount less any offsetting claim. If that is below $4,000 the demand must be set aside; otherwise the court can vary it (s 459H). The court can also set a demand aside if a defect in it would cause substantial injustice, or for "some other reason", but not merely because of a defect (s 459J).

Why disputing the tax itself rarely works

Three rules make tax debts hard to dispute.

• A notice of assessment is conclusive evidence that the assessment was properly made and, except in a review or appeal under Part IVC of the TAA, that its amounts are correct (TAA Sch 1 s 350-10(1), item 2).
• A Commissioner's certificate that an amount is payable is prima facie evidence of the debt (Sch 1 ss 350-10(3) and 350-12).
• A pending review or appeal doesn't stop the ATO recovering the tax (TAA ss 14ZZM(1) and 14ZZR). One exception: a small business entity seeking ART review of an objection decision on a business-related assessment can ask the Tribunal for an order pausing or limiting recovery action while the review runs (TAA ss 14ZZM(2) and 14ZZH).

In Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41, the High Court held that, because of those provisions, the existence and amount of the tax debts were outside the area of "genuine dispute" for s 459H, even though the taxpayers were challenging the assessments (at [58]). The disruption a winding up would cause was an ordinary incident of the process, not a reason to set the demands aside (at [60]).

So an objection, however strong, generally won't defeat a statutory demand on its own. Challenge the tax through an ATO objection and deal with the demand separately, by payment, security or an agreed arrangement. A dispute that doesn't depend on the assessment being wrong, such as whether a payment was credited or how interest was calculated, may still be arguable (in Broadbeach the Commissioner accepted part of the interest was genuinely disputed: at [39]).

Can the ATO wind up your company?

Yes. If the company doesn't pay or apply in time, it is taken to have failed to comply at the end of the 21 days (s 459F(1)). Three things follow.

• Winding-up application. The ATO, as a creditor, can apply to wind up the company in insolvency (s 459P(1)(b)), and the court must generally decide it within 6 months (s 459R).
• Presumption of insolvency. On an application made within 3 months after the failure to comply, the court must presume the company is insolvent (s 459C(2)(a)) unless the company proves otherwise (s 459C(3)).
• Fewer defences. Without leave, the company can't oppose the application on a ground it relied on, or could have relied on, to set the demand aside, and leave requires the ground to be material to proving solvency (s 459S).

The main defence left is usually proving solvency: that the company can pay all its debts as and when they fall due (s 95A). That needs current, reliable financial evidence.

If the court orders a winding up (s 459A), a liquidator takes control of the company's property, and the directors stay in office but can no longer exercise their powers (ss 472, 474 and 198G).

Does winding up affect a director penalty notice?

If the ATO has also given a director penalty notice, the timing matters.

• A court-ordered winding up generally begins on the day the order is made, not the day the application was filed (Corporations Act s 513A(e)).
• Liquidation remits a director penalty only if the winding up begins before the DPN is given or within 21 days after, and only for amounts the company reported in time: for PAYG withholding and GST, within 3 months after the due day, with a stricter rule for superannuation guarantee charge (TAA Sch 1 s 269-30).

So if a DPN has arrived, waiting for the ATO's winding-up application usually won't protect you personally. Directors who want to rely on administration, restructuring or liquidation generally need to act within the DPN's 21 days. See director penalty notices after liquidation.

Can the ATO make you bankrupt?

Yes. For an individual, such as a sole trader, the ATO generally takes these steps.

Step	What happens	Time limit
1. Judgment	The ATO sues for the debt (TAA Sch 1 s 255-5(2))	Court rules apply
2. Bankruptcy notice	Issued by the Official Receiver for a judgment debt of at least $10,000 (Bankruptcy Act 1966, s 41(1); Bankruptcy Regulations 2021 reg 10A, as at November 2026)	21 days after service (s 41(2A))
3. Act of bankruptcy	Not complying with the notice (s 40(1)(g))	At the end of the 21 days
4. Creditor's petition	The ATO asks the court for a sequestration order, for debts totalling at least $10,000 (s 44(1)(a))	Within 6 months after the act of bankruptcy (s 44(1)(c))
5. Hearing	If the order is made, you become bankrupt (ss 43(2) and 52)	Petition lapses after 12 months unless extended (s 52(4))

Once judgment is properly entered, the ATO says it will generally not consent to setting it aside unless the judgment debt, interest and costs are paid in full and the application is filed with an affidavit accurately disclosing the facts (PS LA 2011/18 para 22). So deal with the ATO before judgment.

Your options at each stage

• Before judgment. Check the debt, lodge any objection still in time, and negotiate a payment arrangement.
• After a bankruptcy notice. Within the 21 days, pay the debt, or secure or compound it to the satisfaction of the Commonwealth's agent named in the notice (s 42). Or apply to set the notice aside, or show a counter-claim, set-off or cross demand at least equal to the debt that you couldn't have raised in the original case (s 40(1)(g)). If you apply to set the notice aside before the 21 days end, the court can extend the time for compliance (s 41(6A)), but the application doesn't extend it automatically unless it relies on such a counter-claim, set-off or cross demand (s 41(7)).
• At the hearing. The court can dismiss the petition if you show you can pay your debts or there is other sufficient cause (s 52(2)).

A debt agreement (Part IX) or personal insolvency agreement (Part X) is a formal alternative, but proposing a debt agreement, or signing an authority to start a personal insolvency agreement, is itself an act of bankruptcy (s 40(1)(ha) and (i)). A personal insolvency agreement also disqualifies you from managing corporations until its terms are fully complied with (Corporations Act s 206B(4)). If paying would cause you serious hardship, you can also apply for release from some tax debts (TAA Sch 1 s 340-5).

Does bankruptcy clear tax debt in Australia?

Generally yes, for personal tax debts you owed at the date of bankruptcy. They are provable in the bankruptcy (Bankruptcy Act s 82(1)), and discharge releases you from provable debts (s 153(1)). While you are bankrupt, the ATO generally can't enforce a provable debt against you, or start proceedings on it without the court's leave (s 58(3)).

On a creditor's petition, you are generally discharged automatically 3 years after your statement of affairs is filed (s 149(1)(a)), so the clock doesn't start until you file it. If the trustee objects, the period is generally extended to 5 or 8 years (s 149A).

Debt	Released on discharge?
Income tax, GST and other tax for periods up to the date of bankruptcy, even if assessed later	Generally yes. For the income year in which you become bankrupt, tax on the part of the year up to the bankruptcy is provable and the part after it isn't (Deputy Commissioner of Taxation v Jones [1999] FCA 308 at [45] and [47])
Administrative penalties, such as shortfall penalties for statements made before bankruptcy, or failure to lodge penalties for documents due before it	Generally yes, even if the penalty is assessed later. Any part of a failure to lodge penalty that builds up after the bankruptcy, while the document is still overdue, may not be provable
General interest charge	Generally yes up to the date of bankruptcy. Interest for later periods isn't provable (s 82(3B)), so it may not be released on discharge, although this hasn't been tested
A director penalty that arose before bankruptcy	Probably yes, as it should be a provable debt, although no court appears to have decided this under the current rules
Fines imposed by a court for an offence	No. They aren't provable (s 82(3))
Debts incurred by fraud or a fraudulent breach of trust	No (s 153(2)(b))
Tax on income earned after the date of bankruptcy	Generally no, because it wasn't owed at that date (s 82(1))
The company's own tax debts	No. They are the company's debts, not yours

Discharge doesn't release anyone jointly liable with you, or a guarantor for you (s 153(4)).

Bankruptcy has serious consequences

• Your property, with some exceptions, vests in the trustee (s 58(1)).
• You may have to pay contributions from your income (s 139P).
• You need the trustee's written consent to travel overseas (s 272(1)(c)).
• While undischarged, you are disqualified from managing corporations (Corporations Act s 206B(3)), so you can't remain a director unless the court gives you leave (s 206G).

How we help

• Check the deadline and the grounds. We confirm when and how the demand or notice was served and the last day to act, and tell you whether there is a realistic basis to set it aside. If there is, we prepare and serve the application within time.
• Deal with the ATO. We negotiate payment arrangements or security, get the ATO's position on the demand in writing, and look at GIC remission.
• Challenge the tax. Where an assessment is wrong, we run the objection alongside the recovery response, working with your accountant.

Next step

Send us the statutory demand or bankruptcy notice (every page, including any affidavit), the date and way it reached you, the ATO statement of account, and any objection, court documents or ATO letters about the debt. Tell us if any director has received a director penalty notice. In a short first call we'll confirm your deadline and which options are still open.