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He aha ngā pānga o te pekerau whaiaro me te pekerapu ki ō tāke How personal insolvency and bankruptcy affects your tax

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Your tax obligations will change depending on if you are bankrupt or insolvent.

By law, we must give your financial information to the Official Assignee, New Zealand Insolvency and Trustee Service (ITS).

Debt Repayment Plans and Summary Instalment Orders

If you entered a Debt Repayment Plan or Summary Instalment Order the ITS may ask us to write off some or all of your debt.

No Asset Procedure (NAP)

If you entered a No Asset Procedure (NAP) the Insolvency and Trustee Service (ITS) will let us know if you have met the criteria.

We will write off your outstanding tax debt at the end of the NAP period.

We cannot write off child support, student loan or fraud debt.

Bankruptcy

When you are declared bankrupt:

  • You'll get a new IRD number. This will be issued automatically. You need to give this new number to anyone that has your IRD number before you were declared bankrupt.
  • Some of your refunds will belong to the Official Assignee.
  • We'll add the Official Assignee's bank account to your income tax records. You will not be able to update this until you’re discharged from being bankrupt.
  • Any debt you have on the adjudication date gets written off. We do not write off child support or fraud debt. You will be liable for any new debt after this date.
  • If you have a student loan, you need to change your tax code so that your employer stops making deductions. We send any deductions we get after the adjudication date to the Official Assignee.

Entitlements during bankruptcy

While you’re bankrupt, you're still entitled to receive:

  • Working for Families
  • paid parental leave
  • child support
  • GST refunds, provided you have consent to trade from the Official Assignee.

Any other tax credits from before or during your bankruptcy will either be:

  • used to offset your debts
  • sent to the Official Assignee.

In the year you're discharged we split any tax credits between you and the Official Assignee.

Filing your tax returns

In the year you became bankrupt, you cannot have an income tax assessment under either IRD number.

If you need to file or do an end-of-year square-up because you get Working for Families, you file two part-year income tax returns (IR3s):

  1. 1. A return under your original IRD number from 1 April to your bankruptcy adjudication date. It should show all income and expense claims for this period.
  2. 2. A second return under your new IRD number. This is for the day after your adjudication date to the end of the tax year. It should show all income and expense claims for this period.

We'll do a special assessment for these returns to work out the correct tax for the whole year.

After this year, you’ll file your returns in the usual way.

Losses

Losses can carry over to your new IRD number. You must file your returns up to your adjudication date. Once you’ve filed your returns we’ll let you know the amount of loss to carry forward.

If you're discharged from bankruptcy before 31 March 2017 an adjustment of losses will be needed if:

  • we write off any tax because of your bankruptcy
  • all or some of these losses relate to debts you do not have pay because of your bankruptcy. You must do this in the return filed for the year you are discharged. You may need to consult a tax advisor about this.

If you're discharged from bankruptcy on or after 31 March 2017, you cannot carry your loss forward to a year that ends after that date.

Permission to be in business

You will need permission from the Official Assignee before you can be in business or self-employment. They’ll tell us if you can. You'll then be able to add your own bank account for GST. You'll also be entitled to receive any GST refunds.