What happens to ATO debt in liquidation

When a company goes into liquidation, the ATO becomes a creditor like any other. For GST, PAYG withholding and income tax, the ATO ranks as an unsecured creditor with no priority. Super guarantee charge is different: it ranks with employee entitlements. Liquidation deals with the company’s debt, but it does not automatically end directors’ personal liability under director penalty notices.

Where the ATO ranks

What the ATO does in a liquidation

• Lodges a claim for the company’s tax debts.
• Votes at creditors’ meetings. Where it is the largest creditor, its vote can decide resolutions.
• Receives dividends if there are funds to distribute to its class of creditors.
• Pursues directors separately for director penalties that were not remitted.

What it means for directors

• Director penalties may survive. A non-lockdown penalty is only remitted if the company begins to be wound up within 21 days of the notice. Lockdown penalties are not remitted by liquidation at all. See liquidation and DPNs.
• Dividends help. Any payment the liquidator makes to the ATO reduces both the company’s debt and the director penalty.
• The liquidator will investigate, including whether the company traded while insolvent. See insolvent trading.
• Timing matters. If a director penalty notice has arrived, starting a creditors’ voluntary liquidation within the 21 days can remit non-lockdown amounts. The 21 days are calendar days, and run from the day the ATO posts the notice.

Before you decide

Liquidation is the right outcome for a business that is no longer viable, but it is not the only option. If the business can continue, compare small business restructuring and voluntary administration. See voluntary administration, SBR or liquidation: how to choose.

For how liquidation works more generally, including what directors must do and who is paid first, see company liquidation in Australia.

Common questions

Does the ATO get paid first in a liquidation?

Not for most tax debts. GST, PAYG withholding and income tax owed to the ATO rank as unsecured debts, alongside other unsecured creditors. Super guarantee charge is different, because it ranks with employee entitlements.

Does super guarantee charge have priority in liquidation?

Yes. Super guarantee charge ranks with employee entitlements. For excluded employees, such as directors and their spouses, only the first $2,000 has priority, and the rest ranks with unsecured creditors.

Does liquidation clear the director’s personal liability for ATO debt?

No. A director penalty that was not remitted within 21 days of the notice, or a lockdown penalty, remains the director’s personal liability after liquidation and deregistration.

Do liquidator payments to the ATO reduce my director penalty?

Yes. Payments towards the company’s liability, including dividends from the liquidator, reduce both the company’s debt and the director penalty.

Can the ATO vote in a liquidation?

Yes. The ATO is a creditor and can vote at creditors’ meetings. Where it is the largest creditor, its vote can carry significant weight.

Sources: Corporations Act 2001 (Cth) section 556; Taxation Administration Act 1953 (Cth) Schedule 1, Division 269; Australian Taxation Office, Superannuation and insolvency; Australian Taxation Office, Director penalty regime (last updated 16 April 2026). This page is general information, not advice about your circumstances. Last reviewed: 9 October 2026.