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

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 ITS will let us know if you've met the criteria.

We'll 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:

• Some of your refunds will belong to the Official Assignee.
• Any debt you have on the adjudication date gets written off. We'll write this off after you're discharged from bankruptcy. We do not write off child support or fraud debt. You will be liable for any new debt after your adjudication 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.

Note: If you were adjudicated bankrupt before 28 October 2021, a new IRD number would have been issued to you automatically. You need to give this number to anyone that had your IRD number prior to being declared bankrupt.

Entitlements during bankruptcy

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

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

Any other tax credits (for example, donations 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 become bankrupt, you’ll need to have two part-year income tax assessments: 

1. One from 1 April to your bankruptcy adjudication date. It should show all income and expense claims for this period.
2. A second assessment 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 right tax for the whole year.

Depending on the type of income your have, these assessments with either be an individual income tax return (IR3) or an automatic income tax assessment.

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

Losses

Pre-bankruptcy losses can carry forward and offset against income. 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.

In the tax year you're discharged from bankruptcy, the losses are apportioned based on the number of days before the date of discharge and any remaining losses can no longer carry forward.

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.