How do ATO garnishees work?
How are they really being used?
January 29, 2019
There has been a bit of movement at the station recently in relation to the ATO’s use of garnishee notices, particularly after an ABC Four Corners program that aired in April 2018, in which former ATO staff talked about the inappropriate and unfair use of garnishee notices.
The former employees of the ATO alleged that their superiors gave instructions to issue standard garnishee notices in every case as a ‘cash grab’ towards the end of the 2016/17 financial year and that performance targets were set for ATO staff based on the amount of money they recovered from tax payers.
A review of the ATO’s approach to debt collection was conducted in 2015 by the Inspector-General of Taxation and whilst 19 recommendations came out of that 2015 review, complaints regarding the inappropriate use of garnishee notices still rank in the top three of all ATO complaints.
The Australian Restructuring Insolvency & Turnaround Association made a submission to the ATO recently, outlining its concerns in relation to garnishees in the insolvency context. The Law Council of Australia did the same, but from a broader perspective.
But what are garnishees?
The ATO has the power to ‘give notice’ to a third party, typically a bank or a trade debtor, that requires the third party to pay money directly to the ATO, rather than to the company. The third parties must remit funds to the ATO until the notice is withdrawn. For those who are technically minded, or for those who are struggling to get to sleep at night, check out section 260-5 of the Taxation Administration Act 1953 (“TAA”) for further details.
The Law Council of Australia described garnishees as powerful, invasive and extraordinary, and that they should be used by the ATO with the utmost care and regard, as the TAA provisions overlap troublingly with other legislation, particularly insolvency law.
So what’s all the fuss about I hear you eagerly asking? Let’s have a look at some of the issues.
The amount the ATO can take from the account or debt varies, but can be the full amount of the ATO debt or 30% of the bank account (or debtor’s account), whichever is the lowest amount. Having the bank account hit for a sum like this can be crippling for a taxpayer that may already be struggling financially.
Furthermore, by issuing a garnishee notice, the ATO becomes a secured creditor. It is called a ‘statutory charge’ and it is specifically excluded from the registration requirements of the PPSA. So from a practical perspective, a garnishee notice will not show up in the PPSR searches we all love to hate, so the world at large (even the taxpayer) will not know that a garnishee exists, unless the directors happens to have received notification of the issuance of a garnishee.
Additionally, garnishees can either be one-offs (also known as a ‘point in time’ garnishee) or ongoing, depending on the nature of the business and other circumstances.
What can a taxpayer do?
- Ask for help. Be it from their accountant or reaching out to people like us, asking for help in the first instance is a big step towards getting on top of a problem.
- The taxpayer could contact the ATO to enter into a payment plan to address the debt over time. The ability of taxpayer to enter into a payment plan will depend on their specific circumstances, the amount of the debt, the amount being offered and the taxpayer’s compliance history with the ATO.
- Seek remission of interest and penalty charges, which can sometimes greatly reduce the total debt.
- One option is to consider changing banks and asking customers to direct future payments to the new account. Having said this, the ATO will most likely find out the details of the new account anyway, so this tactic would just be a delaying mechanism
About the author
Greg Quin is a Director at HLB Mann Judd Insolvency WA and has been with the team for 10 years. Greg oversees the daily operations of the many insolvency appointments managed by the team and looks after the operations of the practice.
If you have any queries about the ATO (payment plans, Director Penalty Notices and Garnishee Notices), please feel free to contact Greg on 08 9215 7900, 0402 943 091 or via email to firstname.lastname@example.org.