Australia: Banking And Finance Update

Last Updated: 8 October 2007


  • A reminder about the ATO's powers to rank ahead of secured creditors
    The Tax Administration Act gives the Taxation Commissioner power to collect tax debts from third parties who owe money to a taxpayer
  • AML update
    There are only a few weeks left until the new AML/CTF legislation has a major impact on the mortgage industry. What is the current state of play?

A reminder about the ATO's powers to rank ahead of secured creditors

The Tax Administration Act gives the Taxation Commissioner power to collect tax debts from third parties who owe money to a taxpayer.

For example, the ATO could issue a garnishee notice to X P/L which owes money to your mortgagor. This notice creates a statutory charge over the debt and requires X to pay it to the ATO instead of to your mortgagor.

If X pays the mortgagor in breach of the garnishee, X could be liable to pay a penalty and could be required to pay the debt again to the ATO.

Such a notice could be given to a purchaser buying assets from a mortgagor, thereby reducing the sale proceeds available to reduce the mortgage debt. Payment to the ATO equates to payment to the mortgagor and the mortgagee could be required to release the security for nil consideration.

However, mortgagees should not lose out in this way because the ATO's receivables policy states that:

"a 'garnishee' notice may entitle the Commissioner to receive payment in priority to certain earlier secured creditors. However, the Commissioner will not always seek to enforce that entitlement. For instance, a 'garnishee' notice served on the purchaser of mortgaged land or property will be subject to the Commissioner's discretion as to whether the 'garnishee' should attach that part of the purchase price which is necessary to pay out the mortgage.

The 'garnishee' places an obligation on the purchaser of the encumbered asset which supersedes the purchaser's obligation or discretion to pay money to a secured creditor in accordance with the debtor's instructions. Generally, where a genuine mortgage is concerned, the Commissioner will exercise his discretion and only require the notice to apply to that part of the purchase price to be paid to the vendor or as the vendor directs after the mortgage has been discharged.

However, where there is evidence that the purpose of the mortgage (whether registered or unregistered) was to defeat the Commissioner's recovery powers, the Commissioner will require payment of all or part of the purchase price from the purchaser (see TR 98/18). Note, also, that the Commissioner may issue a garnishee to a receiver in order to attach any surplus of moneys that would otherwise be payable to the mortgagor".

by Jon Denovan

AML update

There are only a few weeks left until the new AML/CTF legislation has a major impact on the mortgage industry. What is the current state of play?

  • For those who came in late, all lenders are reporting entities under the AML/CTF Act as they provide a designated service by making loans.
  • From 12 December 2007 reporting entities must have a compliance plan in place and adopt new procedures for customer identification and verification.
  • Most lenders are yet to:
    • release their procedures for identity verification by brokers and mortgage managers
    • prescribe procedures for compliance with the new regime
    • formally appoint brokers their agents or sub-sub-agents to effect identification.
  • Although there is an 18 month period of "supported compliance", this is not a moratorium from prosecution. AUSTRAC has made it clear that all lenders need to implement new borrower identification procedures and have a Compliance Plan in place from 12 December 2007.
  • Gadens Lawyers are working with the major trustee companies, AUSTRAC, and the Attorney General's department to clarify the position of trustees who act as lender of record. Under the Act, penalties of up to $11 million apply for breach. Trustees are keen to ensure that they have a valid indemnity or preferably, that the liability for breach is shifted to the master servicer or program manager who runs the relevant mortgage program
  • Gadens Lawyers have prepared the base reference manual for lenders and is currently completing the Compliance Plan and identification procedures for release in mid-October. Lenders using the Gadens' program will be well placed to comply with the new law by the 12 December deadline.
  • The MFAA education program for brokers should be released from the beginning of November to allow brokers to obtain a sound working knowledge of the AML/CTF regime. This will avoid the need for lenders to provide multiple training for brokers. Unfortunately, the MFAA has been unable to obtain agreement from lenders as to a standard identification regime to replace the current 100 point system. A reminder that brokers are not directly regulated by the new AML/CTF Act. Lenders are regulated and will either ask brokers to conduct the identification or require borrowers to attend the lender's office for identification.
  • It is not too late for lenders to join the Gadens Lawyers program to ensure compliance with best practice.

by Vicki Grey



Jon Denovan

t (02) 9931 4927


Vicki Grey

t (02) 9931 4753




Peter Grotjan

t (03) 9617 8538




Deborah Bean

t (07) 3231 1567


Barry O'Callaghan

t (07) 3114 0245




Joe Claudio

t (08) 9223 9248



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