While the ATO presents them as a ‘last resort’, a Garnishee Notice can be issued by the ATO at any time in respect of outstanding taxation debts. If a Garnishee Notice is issued, it will likely have a very significant, and immediate, effect on your clients’ financial circumstances, as well as create a range of potential ‘knock on’ problems. We now summarise some key features if Garnishee Notices.
- Notice issued to a third party who owes, or may in the future owe, a taxpayer money. Third party is then compelled to pay funds to the ATO in reduction of any outstanding tax debt – the ATO’s ‘Nuclear Weapon.’
- Payment by third party is ‘good payment’ of their obligation to the taxpayer.
- Can be issued even if:
– Taxpayer is in a repayment plan/negotiating with the ATO; and
– There are outstanding Director Penalty amounts.
- ATO must issue notice to an identifiable party – cannot issue ‘blanket notice. This means you need to be aware of what your client is telling the ATO – sources of information for ATO in identifying possible targets for Garnishee Notices include:
– Tax returns: Shareholding or other investment information, financial institutions;
– Tax agent/ taxpayer discussions with the ATO regarding defaults, payment plans,disclosure of financial circumstances; and
– Other government agencies – increased information sharing with ASIC.
- Main recipients of Garnishee Notices are banks and financial institutions. However, ATO can issue on any third party, including:
– Debtors: trade debtors and others who owe taxpayer money (e.g. related party loans); and
– Superannuation funds or life insurance policies: Garnishee Notice is effective once the benefit becomes payable;
– Solicitor’s trust account, employers (wages or other benefits – generally only 30c/$), the purchaser of land or other property from the taxpayer (is entitled to apply funds ahead of mortgagee rights, but as this would generally stop a sale, tends to be issued for balance of proceeds of sale after mortgagee paid out).
- No enforceability if issued after an insolvency appointment takes place.
- If issued prior to an insolvency appointment, ATO generally won’t withdraw a Garnishee Notice which continues to be effective against the insolvency appointee – any payment made does not constitute an unfair preference or voidable transaction.
This article was prepared by Colin Brown, a partner in our insolvency and reconstruction team. We invite you to contact Colin, or Michael O’Neill, should you have any questions or require any further information about the matters discussed in this article.
The contents of this article are intended to provide only a general summary on matters of interest and as at the date of publication are not comprehensive, nor does this article constitute legal advice. You should seek legal or other professional advice before acting or relying on any of the contents of this article.
© O’Neill Partners – Commercial Lawyers, 2015