ATO late lodgement penalty: up to $364 per 28 days, capped at $1,820 per document · interest 11.43% p.a. compounding daily · See how to remit them →
Recognising insolvency: the cash-flow test
| Indicator | The everyday version |
|---|---|
| Trading losses with no new funding path | The overdraft is the business model |
| ATO arrears used as finance | Unpaid BAS and super as the loan of last resort - the single most cited insolvency indicator in the case law |
| Creditors on cash on delivery or payment plans everywhere | Suppliers stopped trusting the terms |
| Round-robin payments, dishonours, garnishees | Cash triage as a daily activity |
| No reliable accounts | Nobody can actually say, which is itself the indicator |
That second row deserves the emphasis. Financing a company on unremitted tax and super is both the classic insolvency marker and the exact behaviour the director penalty regime personalises. The debts you are borrowing against are the ones that follow you home.
The safe harbour: how a lawful turnaround works
From the moment you suspect insolvency, liability for new debts is suspended while you are developing or taking a course of action reasonably likely to lead to a better outcome than immediate administration or liquidation. Four conditions make or break it.
- Employee entitlements, including super, paid when due. Ongoing, not aspirational.
- Tax reporting obligations met. Returns, BAS and notifications lodged. A company months behind on lodgment cannot be in safe harbour.
- Properly informed. Reliable financial records and advice from an appropriately qualified adviser, whose file is your evidence.
- A documented plan. Forecasts, milestones and review points, actually followed, with the exit taken when the milestones say so.
If you are in the danger zone
Lodge everything and pay the trust-money obligations first
This is simultaneously the safe harbour ticket, the director penalty shield and small business restructuring eligibility.
Get the adviser and the plan inside the same fortnight
Reliable numbers and qualified advice are conditions, not luxuries. The adviser file is the evidence.
Let the plan's own milestones make the call
Trade on, restructure or wind down in an orderly way - in writing, before a statutory demand makes the decision for you.
Frequently asked questions
What is insolvent trading?
How do I know if my company is insolvent?
What is the insolvency safe harbour?
Can I be in safe harbour with overdue BAS?
Does safe harbour protect against director penalty notices?
General information only - not personal tax, financial or legal advice. Consider your own circumstances or speak to a registered tax agent. Remission of penalties or interest and payment plans are decisions of the ATO and outcomes can't be guaranteed.