ATO Garnishee Discover – #1 Full Information


ATO Garnishee Notice Complete Guide Australia tax lawyersA garnishee discover is a discover issued by the Australian Taxation Workplace (“the ATO”) to a third-party of a tax debtor, directing any monies held on behalf of the tax debtor be transferred to them.

ATO garnishee notices can fairly often be embarrassing to the taxpayer and might generally harm the enterprise as it could pressure third events into the enterprise’s monetary points.

This garnishee discover might also trigger important cashflow points for the enterprise.

The ATO can ship a garnishee discover to a variety of completely different third events. For particular person tax debtors, the ATO can probably ship a garnishee discover to:

  1. An individual who owes the tax debtor cash from the sale of actual property.
  2. The tax debtor’s employer or head contractor.
  3. The tax debtor’s monetary establishments together with banks and constructing societies.

For enterprise tax debtor’s, the ATO can probably ship a garnishee discover to:

  1. The tax debtor’s enterprise monetary establishment, financial institution, or constructing society.
  2. The tax debtor’s enterprise suppliers of service provider card services.
  3. The tax debtor’s enterprise commerce debtors.

On this article, our Queensland litigation legal professionals clarify the fundamentals of resolving tax debt disputes with the ATO.

If an ATO garnishee discover has been issued, then contact our litigation and dispute decision legal professionals to debate

What’s a garnishee discover?

As above, a garnishee discover is a device utilized by the ATO to get better tax money owed from a tax debtor.

The authority is given to the ATO by part 260-5 of schedule 1 of the TAA. Part 260-5(1) says:

(1)  This Subdivision applies if any of the next quantities (the debt) is payable to the Commonwealth by an entity (the debtor) (whether or not or not the debt has change into due and payable):

(a)  an quantity of a * tax-related legal responsibility;

(b)  a judgment debt for a * tax-related legal responsibility;

(c)  prices for such a judgment debt;

(d)  an quantity {that a} courtroom has ordered the debtor to pay to the Commissioner following the debtor’s conviction for an offence in opposition to a * taxation legislation.

So, garnishee discover will be issued for:

  1. A tax debt; and/or
  2. A judgment given on a tax debt; and/or
  3. The ATO’s prices of acquiring judgment on a tax debt.

Part 260-5(2) of the TAA then goes on to say:

The Commissioner could give a written discover to an entity (the third social gathering) beneath this part if the third social gathering owes or could later owe cash to the debtor.

This part of the TAA authorises the ATO to serve a written garnishee discover on any third social gathering, if that third social gathering owed cash to the tax debtor.

Part 260-5(3) of the TAA then goes on to say:

(3)  The third social gathering is taken to owe cash (the out there cash) to the debtor if the third social gathering:

(a)  is an entity by whom the cash is due or accruing to the debtor; or

(b)  holds the cash for or on account of the debtor; or

(c)  holds the cash on account of another entity for cost to the debtor; or

(d)  has authority from another entity to pay the cash to the debtor.

The third social gathering is so taken to owe the cash to the debtor even when:

(e)  the cash shouldn’t be due, or shouldn’t be so held, or payable beneath the authority, except a situation is fulfilled; and

(f)  the situation has not been fulfilled.

The ATO garnishee discover would require the third social gathering to pay the alleged quantity of the tax debt instantly after issuance; or inside a specified time after the quantity of the out there cash involved turns into an quantity owing to the debtor.

These two varieties of garnishee notices are known as:

  1. Cut-off date notices; and
  2. Persevering with notices.

We are going to clarify the distinction in additional element beneath.

Have you ever been issued with a director penalty discover? Learn our director penalty discover article right here.

Level in Time ATO Garnishee Discover

Cut-off date notices are notices which demand a single one-off cost.

For instance, the tax debtor’s financial institution should pay the total tax debt, or a sure proportion, from the required account of the tax debtor, whichever is much less.

That is given authority by 260-5(4)(a) of the TAA which says:

(4)  A discover beneath this part should:

(a)  require the third social gathering to pay to the Commissioner the lesser of, or a specified quantity not exceeding the lesser of:

(i)  the debt; or

(ii)  the out there cash

Part 260-5(4)(a) of schedule 1 of the TAA authorises the only cost from the third social gathering of the tax debtor.

There are additionally persevering with garnishee notices.

Persevering with ATO Garnishee Discover

Persevering with notices are notices which demand steady funds from the third social gathering.

For instance, the tax debtor’s financial institution should pay an amount of cash within the checking account, in addition to any future deposits.

That is given authority by 260-5(4)(b) of schedule 1 of the TAA which says:

(4)  A discover beneath this part should:

(b)  if there might be quantities of the out there cash now and again–require the third social gathering to pay to the Commissioner a specified quantity, or a specified proportion, of every quantity of the out there cash, till the debt is happy.

Part 260-5(4)(b) authorises the persevering with funds from the third social gathering of the tax debtor.

As you’ll be able to see, the ATO’s authorized energy to situation a garnishee discover are powers given to the ATO pursuant to part 260-5 of schedule 1 of the Taxation Administration Act 1953 (Cth).

The ATO could situation a garnishee discover to varied third events.

ATO Garnishee Notice Australia

What’s the Third Get together Required to Do?

When issued with a garnishee discover, the third social gathering has a sure timeframe to adjust to the discover.

The third social gathering should adjust to the garnishee discover, or they face severe penalties. In the event that they do comply then it’s deemed to have been made with the tax debtor’s consent.

If the third-party doesn’t adjust to the garnishee discover, then this can be a prison offence. The penalty for non-payment by the third social gathering are:

  1. A positive (20 penalty models); and
  2. Legal responsibility to pay the quantity of the garnishee discover.

As you’ll be able to see, the circumstances are onerous for the third social gathering, they usually should pay of face the punishment above. In case you are not sure then it is important you get recommendation from a tax dispute lawyer.

Who Can the ATO Situation Garnishee Notices To?

The ATO can situation a garnishee discover to the next:

  1. A contractor who owes cash to a tax debtor, and different commerce debtors.
  2. An employer who owes cash to a tax debtor.
  3. Banks, monetary establishments and constructing societies the place the tax debtor has accounts.
  4. Folks concerned within the sale of land or property from a tax debtor equivalent to purchasers, actual property brokers and solicitors.
  5. Solicitors or accountants holding funds in belief on behalf of a tax debtor.
  6. An Australian firm during which a tax debtor is a shareholder; and
  7. The suppliers of service provider card services.

The ATO’s attain is lengthy, and the issuance of a garnishee discover on any certainly one of these could trigger devastating and long-lasting harm to the taxpayer’s enterprise and enterprise relationships.

It is rather essential that you just search recommendation as quickly as you obtain a garnishee discover.

Why have the ATO Issued a Garnishee Discover?

Why has a garnishee discover been issued? A garnishee discover might be issued by the ATO in opposition to the tax debtor within the following circumstances:

  1. The tax debtor doesn’t pay a tax obligation and fails to take affordable steps with the ATO to resolve this dispute.
  2. The tax debtor has repeatedly defaulted on it agreed ATO taxation cost plans.
  3. The tax debtor has proven that they aren’t keen to work with the ATO to resolve the dispute.
  4. The tax debtor appears to be partaking in unlawful phoenix actions.
  5. The tax division has detected deliberate and ongoing avoidance in relation to an ATO tax audit.

Principally, don’t stick your head within the sand! In the event you owe tax to the ATO, simply work with them to organise repayments.

What does the ATO Think about when Issuing Garnishee Notices?

The ATO will think about a variety of issues when deciding whether or not to situation a garnishee discover.

These will embody (inter alia) the tax debtor’s monetary place, and whether or not the tax debtor might be liable to offering for his or her household, or enterprise.

The ATO Apply Assertion Legislation Administration 2011/18 says at 108:

The ATO will think about the next when deciding whether or not to situation a garnishee discover:

  1. the possible implications on the tax debtor’s potential to offer for a household or keep the viability of a enterprise ought to the discover be issued.
  2. the tax debtor’s monetary place and circumstances and the steps the tax debtor has taken to pay the debt within the shortest attainable timeframe;
  3. whether or not the income is positioned in danger due to the tax debtor’s actions (ie paying different collectors instead of the ATO); and
  4. every other money owed that the tax debtor owes.

So, the ATO ought to avail itself of the data required above earlier than it was to situation a garnishee discover. If one is issued, are there any defences to an ATO garnishee discover?

Defences to an ATO Garnishee Discover

There are a number of issues {that a} tax debtor can do to attempt to cease the third social gathering from making the cost to the ATO. These embody:

  1. Confirming that the entire formal necessities of the garnishee discover are included.
  2. If the garnishee discover is issued on a judgment, examine if there’s a keep of enforcement of the judgment, or attraction out there to the tax debtor.
  3. If the funds are held in a self-managed superannuation fund account, held in a joint account, or held in overseas forex.
  4. If the garnishee discover has been issued by the ATO for an improper function or in unhealthy religion.

Nonetheless, these defences aren’t robust defences and are dangerous purposes to make and achieve success.

It’s all the time good to examine along with your tax money owed lawyer.

You may additionally strive mitigating the deductions the third social gathering has to pay by:

  1. If the garnishee discover is in opposition to your employer, you’ll be able to resign.
  2. If the garnishee discover is in opposition to your financial institution, you’ll be able to change banks.

Alternatively, the underlying tax evaluation the ATO has despatched might also be challenged in Court docket proceedings. The Federal Court docket has jurisdiction to overview tax assessments.

Defending tax money owed will be tough due to the final rule {that a} tax evaluation is conclusive proof:

  1. Of the quantity of tax payable, curiosity owing and penalties; and
  2. That the taxation itself evaluation was correctly made by the ATO.

Because of this the taxpayer should need to pay your complete assessed quantity to the ATO, even when there’s a real dispute about a part of the tax legal responsibility.

In the event you get a discover that the objection to the tax evaluation was not profitable, and also you file an attraction within the AAT or the Court docket, then you should still be required to pay your complete quantity of the tax evaluation.

Due to this, it may be very tough to defend tax debt proceedings in Court docket.

Nonetheless, the ATO could conform to withdraw garnishee notices.

Will the ATO conform to Withdraw the ATO Garnishee Discover?

The ATO could conform to withdraw or amend a garnishee discover in sure conditions.

The ATO Apply Assertion Legislation Administration 2011/18 says at 109 states:

The Commissioner will think about any affordable request from a tax debtor to both withdraw or range the necessities of a garnishee discover, offered the tax debtor makes appropriate various preparations for cost.

If the ATO can see {that a} tax debtor is definitely attempting to resolve their tax money owed, they might conform to withdraw the garnishee discover.

It will often imply that the tax debtor is ready to enter right into a cost plan for the cost of the tax debt.

What’s an ATO Fee Plan?

An ATO cost plan is an settlement between the tax debtor and the tax workplace which permits the tax debtor to pay the excellent tax in instalments.

There are often some circumstances connected, equivalent to being updated with all different tax obligations, and/or the plan being for now not that 12 months.

If the tax debtor and the ATO agrees to the cost plan, then the ATO could withdraw the garnishee discover.

A garnishee discover will often have an individual of contact on the ATO. If you wish to organize a cost it is important that you just contact that particular person, or the ATO, earlier than the third social gathering is required to make the cost.

An skilled negotiator might also have the ability to scale back your tax debt legal responsibility by negotiating for the discount of the added curiosity and penalties.

What Kind of Fee Plan Ought to I Enter?

There are a variety of various cost plans {that a} tax debtor can enter into, based mostly on the circumstances of your explicit state of affairs.

Some ATO cost plans could final for 3 (3) months, and a few ATO cost plans could final for over two (2) years, or extra. Most are for as much as 12 months.

Some ATO cost plans could require an upfront cost earlier than making month-to-month repayments, and a few ATO cost plans could not require any upfront funds.

The kind of cost association {that a} tax debtor can negotiate with the ATO relies on a number of various factors, equivalent to:

  • The quantity of the debt owed to the ATO.
  • The amount of cash a tax debtor can afford to pay.
  • Whether or not the tax debtor is ready to present safety to the ATO (mortgage, for instance); and
  • The tax debtor’s compliance historical past with the ATO.

The easiest way to mitigate danger, is to keep away from being given a garnishee discover within the first place.

Keep away from Being Issued with a Garnishee Discover?

I realise that in case you are studying this on our web site, you or your shopper has possible already been served with an ATO garnishee discover.

Nonetheless, there are a variety of issues {that a} taxpayer can do to keep away from any ATO hostile motion:

  1. Don’t ignore the warnings from the ATO.
  2. Act rapidly to get the alleged tax debt resolved.
  3. Negotiate a cost plan with the ATO.
  4. In the event you can’t pay, then appoint a liquidator or chapter trustee.
  5. Get skilled accounting and authorized recommendation.

One of the best recommendation shouldn’t be burying your head within the sand.

If the ATO declare you’ve got a tax legal responsibility, then it is best to try and do one thing. Don’t simply do nothing and hope you get some extra money sooner or later.

The ATO is a Secured Creditor Due to the Garnishee Discover

Care needs to be taken with ATO garnishee notices as a result of as soon as issued, the ATO turns into a secured creditor by the use of a statutory cost over the monies held by the third social gathering.

In Hansen Yuncken Pty Ltd v. Ian James Ericson buying and selling as Flea’s Concreting & Anor [2012] QSC 51, McMurdo J stated at [35]:

It should be accepted then that the service of a s 260-5 discover confers upon the Commissioner what has been described as a statutory cost over the related debt. However that’s not ample to get rid of the current contest, as a result of it’s a cost in a restricted sense and, specifically, it’s not a cost which gives the Commissioner with a proprietary curiosity within the topic debt.

Once more, this offers the ATO benefits, so if it may be withdraw then the tax debtor might be in a greater place.

Conclusion on ATO Garnishee Notices

If a 3rd social gathering has been served with a garnishee discover, then the tax debtor should act rapidly to keep away from that debt being paid.

The tax debtor can take some steps to defend the garnishee discover, however the defences are often very tough to achieve success.

A tax debtor could give you the option negotiate a cost plan in change for the garnishee being withdrawn.

Most significantly, act rapidly and get certified authorized recommendation as quickly as attainable.

If an ATO garnishee discover has been issued, then contact our litigation and dispute decision legal professionals to debate

Garnishee Discover Continuously Requested Questions FAQ

We get requested questions in relation to garnishee notices. We now have chosen just a few of probably the most generally requested questions beneath.

How a lot can the ATO garnishee?

The whole quantity of the overdue tax evaluation will be collected. Nonetheless, the ATO is not going to take extra that 30% of any wages or salaries garnished.

How do I do know if a garnishee discover has been despatched by the ATO?

If the ATO sends a garnishee discover to a 3rd social gathering, they’re additionally obliged to ship a replica to the tax debtor. Part 260-5(6) of schedule 1 of the Tax Administration Act says, “The Commissioner should ship a replica of the discover to the debtor”.

What ought to I do if I obtain a garnishee discover?

In case you are a 3rd social gathering, then you should pay the quantity requested earlier than the expiration of the cost interval, or it’s possible you’ll get a positive or be accountable for the debt.

In case you are a tax debtor then you should act rapidly, and also you might be able to get the garnishee discover withdrawn in change for a cost plan.

When can the ATO situation a garnishee discover?

If there’s a tax debt legal responsibility, and the tax debtor has:

  1. Didn’t take affordable steps to resolve this; or
  2. Repeated defaults on cost plans; or
  3. Unwillingness to work with the ATO; or
  4. Unlawful phoenix exercise; or
  5. Deliberate and ongoing avoidance.

Can the ATO situation a garnishee discover if the corporate is in exterior administration?

The ATO can’t situation a garnishee discover as soon as the corporate is in liquidation (Bell Group Restricted (in liq) v DCT [2015] FCA 1056).

The third social gathering should be liable if the garnishee discover was issued previous to the corporate going into liquidation.

Nonetheless, the Garnishee Discover creates a statutory cost over the monies held by the third social gathering to the ATO, making the ATO a secured creditor.

Who receives a garnishee discover?

Each the tax debtor and the third social gathering will obtain the garnishee discover.

The third events embody a contractor, employer, banks, monetary establishments and constructing societies, purchasers of actual property, actual property brokers, solicitors, accountants, an organization during which a tax debtor is a shareholder; and suppliers of service provider card services.

What occurs after I obtain a discover?

In case you are a 3rd social gathering, you should pay the quantity contained within the ATO garnishee discover.

In case you are the tax debtor, you should try and both defend the garnishee discover on technical grounds or negotiate a cost plan with the ATO in change for it to be withdrawn.

How can I problem a garnishee discover?

You’ll be able to problem the garnishee discover on the next grounds:

  1. Making certain that the entire formal necessities of the garnishee discover are included; or
  2. Acquire a keep of enforcement of the judgment debt; or
  3. Make sure the funds aren’t held in a joint account or held in overseas forex; or
  4. Examine if garnishee discover has been issued for an improper function or in unhealthy religion.

If an ATO garnishee discover has been issued, then contact our litigation and dispute decision legal professionals to debate



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