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01 Mar 2022

ATO garnishee notices: A compelling tool in tax debt recovery

READ TIME

4 min

How tax debt can become too close to home.


When tax debt accrues and remains unpaid the Australian Taxation Office (ATO) has several ways and tools to communicate the issue, and to demand payment. This article outlines “garnishee notices” as one compelling ATO debt recovery tool.

Firstly, the ATO can let people/businesses know there’s an issue by:

  • SMS

  • myGov message

  • letter


Aside from being told numerous ways[1] that there’s a tax debt owing, the tax debt will attract a general interest charge that grows the debt owing daily.

Secondly, the ATO debt can become public information. For certain tax debts of a certain amount, these can be reported to certain credit reporting bureaus (click here to learn more). However, it can become public knowledge—and too close to home—through a garnishee order. The ATO can issue a garnishee notice to a person/business holding money for others (owing now or in the future). The garnishee notice requires them to pay that money directly to the ATO to reduce the original recipient’s debt. Two types of garnishee notices apply:

  1. A one-off payment garnishee notice.

  2. A continuing payments garnishee notice.


Garnishee notice recipients include:

  • employer or contractor (with a 30% limit on wages/salary)

  • banks, financial institutions, and building societies

  • people who owe money from the sale of real estate such as purchasers, real estate agents, and solicitors.

  • trade debtors (for businesses with tax debt)

  • merchant card facilities supplier (for businesses with tax debt)

  • solicitors/accountants holding funds on trust

  • shares in Australian companies.


When the ATO issues a garnishee notice it becomes a secured creditor for that money (as a statutory charge) held by any of the third parties listed above. That third party receiving a garnishee notice is also under pressure, not only to observe the payment terms but if not paid, through potential fines (20 penalty units) and committing a criminal offence.

A garnishee notice’s impact is obviously stressful and can cause significant cash-flow issues, along with potential credit rating issues.

Defending a garnishee notice (if there’s sufficient grounds to believe it’s defendable) is obviously best considered by a lawyer. And those subject to a garnishee notice should immediately get professional advice about debt serviceability and financial stress from insolvency practitioners who are registered liquidators and registered bankruptcy trustees. The key is to act quickly; it may be possible to engage with the ATO to exchange the garnishee notice in favour of a repayment plan that does not bring third parties into the equation. Ideally, a garnishee notice will never be on the table for those who communicate and lodge with the ATO. As an agency, particularly given the ongoing COVID-19 economic impact, it truly does its best to engage with taxpayers and consider a wide range of financial circumstances including hardship. A garnishee notice is not only stressful to all parties involved (or garnished), but it also creates awareness that financial strife is brewing.

The teams at Worrells are here to help. We talk to businesses and individuals every day as complimentary to assess financial challenges and to empower clarity and options to move out of the mess of stress.

Related articles:

Challenging the ATO on a garnishee notice

How ATO garnishee notices work

 

Legislation:

Garnishee notice: section 260-5 in schedule 1 of the Taxation Administration Act 1953 (TAA)

One-off garnishee notice: section 260-5(4)(a) of the TAA

Continuing payments garnishee notice: 260-5(4)(b) of the TAA

[1] To verify or report a scam: https://www.ato.gov.au/general/online-services/identity-security-and-scams/Verify-or-report-a-scam/

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