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GLOSSARYTERMS AS A CREDIT DESK USES THEM

Tax arrears (statutory tax debt)

What are tax arrears, and how do they rank against a lender's security?

ONE OF 416 TERMS · FREE · NO SIGNUP

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED

// THE SHORT ANSWER

Tax arrears are tax owed past its due date, often GST or VAT and tax deducted from wages, which a struggling business tends to stop paying first. Ranking differs: in New Zealand, GST and PAYE are preferential claims paid, where free assets fall short, from receivables and stock ahead of most security over them; in the UK, VAT and PAYE deductions became secondary preferential claims in December 2020, ahead of floating charges; in Australia, tax lost its priority in 1993, but directors can be personally liable for unpaid PAYG withholding, superannuation guarantee and GST. A lender reads a tax payment arrangement as debt and an early sign of strain.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

// THE FULL PAGE

Tax Arrears: How They Rank Against a Lender's Security →

The first creditor a struggling business stops paying is the state.

// WHAT IT IS NOT

Preferential creditors covers every claim the law pays ahead of ordinary creditors, chiefly employees; tax arrears are the tax debt itself, read both as a ranking claim and as a warning sign.

// WORKED IN

// NEXT TO IT

SECURITY AND RANKING

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