Damian O'Connor, Special Counsel and Helen
Mid-last year, the Commissioner of Taxation, Michael
D'Ascenzo, gave a speech indicating that the Australian
Taxation Office would be taking "firmer action" with
businesses who are unwilling to work with the ATO, or who are
unable to meet outstanding tax debts. He said that this would
include recovery actions such as garnishees, director penalties,
statutory demands and wind-ups or bankruptcies.
Accountants are now reporting a sharp increase in the number of
garnishee notices being issued to business bank accounts. It seems
that it's not just small and medium businesses who are
"unwilling to cooperate" or are unable to pay escalating
debts. Many taxpayers who have entered into repayment plans have
been targeted, receiving garnishee notices if they miss even one
repayment. What's more, businesses are, in some cases, not
being issued with a copy of the garnishee notice and only finding
out about it when their direct debits or cheques are declined.
Here, Special Counsel Damian O'Connor and Solicitor Helen
Davison outline how garnishee notices work, and why it's
important that businesses are aware of this powerful weapon in the
How garnishee notices work
A garnishee notice is a notice issued by the Tax Commissioner to
a third party, such as a bank, compelling it to pay funds held on a
taxpayer's behalf to the ATO to recover a tax debt.
The Commissioner can issue a garnishee notice whenever a
taxpayer owes a tax debt. However, he can also issue a notice
your tax has not yet become due;
you have entered into a repayment arrangement;
you are negotiating with the ATO; or
you have outstanding director's penalty liabilities.
Garnishee notices can be issued to:
any bank account in your name (your bank must search for all
accounts in your name). Further, if you have an investment account
that has not matured, the garnishee notice will remain in place
debtors who owe or may later owe you money;
your superannuation fund, although it will not be effective
until the benefit is payable;
life insurance policies, although it will not be effective
until monies become payable;
a company in which you hold shares (your dividends could be
your solicitor, for money held in a trust account on your
be applied to sale proceeds (garnishee notices can take
priority over mortgages where you have taken out the mortgage to
defeat the notice); and
a third party, for money paid before you received the
Know your rights
The Commissioner should not issue notices:
to joint bank accounts (even when both account holders owe a
to the Official Trustee;
if the notice will deprive you of virtually all your income;
if your business is being wound up.
Garnishee notices can have severe implications for both
businesses and individuals. For example, if a garnishee notice has
been issued for sale proceeds, you may be in breach of contract if
you have entered into a contract that is dependent on those
proceeds. While the ATO has extensive powers, its officers may be
willing to negotiate suitable outcomes if you have tax liabilities.
Further, even if the ATO does take a hard line, its actions can
often be challenged successfully. A good example is Bruton
Holdings Pty Ltd (in liquidation) v Commissioner of Taxation,
where the High Court held that a garnishee notice issued after a
business had being placed into liquidation was void.
For more information about garnishee notices or advice on your
dealings with the ATO, please contact HopgoodGanim's Taxation
and Revenue practice.
Exemptions or concessions on stamp duty could apply when contemplating the purchase or transfer of NSW real estate.
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