4B. Your Income

4B. YOUR EMPLOYMENT & INCOME

The Bankruptcy Act does not impose any restrictions on employment in any trade or profession. You can continue to earn an income and/or seek other employment opportunities. You should note however that particular industry associations or licensing authorities may impose certain restrictions or conditions should a member or licensee become bankrupt.

Generally state governments administer legislation that govern eligibility for particular trades (eg builders, real estate agents, etc) while national or state based professional associations and/or statutory boards set the eligibility requirements for particular professions (eg accountants, lawyers, tax agents, etc). You should check with your relevant licensing authority or professional organisation to ascertain whether bankruptcy has any impact on your ability to continue in that trade or profession.

Under the Corporations Act you are prevented from managing a corporation while bankrupt without approval from the court.

What happens to my income while I am bankrupt?
If your after-tax income exceeds a certain amount, you will have to pay contributions from your income to your trustee.

If you are a low-income earner you will not have to pay contributions. However, you may make voluntary payments to your trustee.

If I have to pay contributions, how much?
You will be required to pay one half of the amount by which your after-tax income exceeds the prescribed threshold amount ie 50 cents of every $1 of the excess amount.

(Note: ‘income’ for income-contribution purposes under the Bankruptcy Act has a wide meaning and includes certain amounts that are not included in taxable income)

How are contributions calculated?
At the start of your bankruptcy your trustee will calculate whether you will be required to pay any income contributions during the first year of your bankruptcy. Also, the trustee will repeat that process at the start of each subsequent year of your bankruptcy.

The calculation is done using the following formula:

‘Assessed income’ minus ‘Actual income threshold’

What is assessed income?
Assessed income for bankruptcy purposes includes your earnings, salary or wages plus other financial benefits received by you from various sources less the tax paid or payable (including the Medicare levy) on such amounts and if applicable, child support or maintenance payments. It includes:

wages and salary (including second jobs)
tax refunds for financial years during bankruptcy
fringe benefits from your employer or others (eg use of a car, subsidised rent)
salary sacrifice arrangements
business profits
some benefits and pensions
income you earn which is paid to someone else.

Your trustee will be able to answer any questions you have about what is included as income.

Warning:
You must disclose all income and benefits to your trustee. Penalties apply for non-disclosure.

Your trustee will calculate your assessed income by:

determining your total income from all sources
deducting your income tax, Medicare levy and child support or maintenance payments.

What is the actual income threshold amount (AITA)?
The AITA (approx 3 1/2 times the maximum pension rate) is based on an indexed figure and changes periodically*. If you have dependants the income threshold amount increases in accordance with the number of dependants.

Example
Bob expects his gross income for the first 12 months of his bankruptcy to be $65 000. He has one dependant.

Step 1: The trustee calculates Bob’s assessed income.

gross expected income	$65 000.00
deduct income tax	$13 524.66
deduct Medicare levy	$975.00
Assessed income	$50 500.34

Step 2: The trustee works out Bob’s AITA.

AITA (with 1 dependant)

$48 675.35*

Step 3: The trustee uses Bob’s assessed income and AITA to calculate his annual contribution liability.

$50 500 – $48 675* = $1 825 � 2 = $912

Bob receives a notice of assessment, requiring him to pay $912 at $35 per fortnight. Payment arrangements may be changed by the trustee if Bob is paid monthly or his income is seasonal.

Notice of assessment
You will be sent a notice of assessment by your trustee with:

the amount you have to pay (if any)
how the amount was calculated
the dates your payments are due.

Consequences for non-payment
Your trustee may:

garnishee (automatically deduct without your consent) funds from your income or bank account or from a third person who holds money for you, and/or
extend your bankruptcy by five years and assess additional contributions for this period, and/or
obtain judgment for unpaid contributions and take enforcement action after your discharge
require you to open a supervised bank account into which all your income must be paid from which all withdrawals are authorised by the trustee.

*For the current indexed amounts please see the current Indexed Amounts fact sheet or visit the ITSA website at www.itsa.gov.au.

What if my circumstances change?
You must advise your trustee immediately if your income or number of dependants changes, or you think these details will change in the next 12 months. If you fail to do so, your assessment may be incorrect and you may pay too much or not enough.

At the end of each 12 month period your trustee will re-assess your contribution liability based on your actual income and dependants for the period. If you have not paid enough because your income was greater than you estimated then you will have to make up the shortfall. If you have paid too much the extra payments cannot be refunded but they will be credited to the next assessment.

Hardship variations
Hardship grounds are limited to exceptional circumstances which would impose an excessive financial burden on you including:

ongoing medical expenses
cost of child day care essential for work
high rent
substantial travelling expenses to and from work, or
loss of contribution, usually made by your spouse or someone residing with you, to the costs of maintaining your household.

Contact your trustee for more details if you think you may be eligible for a hardship variation. Applications for hardship must be in writing and:

explain why you will suffer hardship
include documentary evidence of your income and expenses.

Your trustee will make a decision on your application within 30 days and give you a written notice setting out their reasons.

Review
Contact your trustee if you disagree with your contribution assessment or a decision to refuse a hardship variation. If you still disagree you may request a review by the Inspector-General. The request for review needs to be in writing and lodged within 60 days of you being notified of the assessment. However, you must still make payments during the appeal period.

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