Some people unfortunately incur unmanageable tax debts. This can be income tax, or perhaps PAYG Tax or GST from a sole trader business or director penalty debt. Once this tax debt reaches a certain level it can be difficult to ever pay given interest and penalties can keep accruing.
In these circumstances some people just decide not to pay the ATO and seek to move on with their lives, often in a new job working for someone else. But this approach of ignoring the ATO can often be the worse thing you can do.
ATO’s ability to issue Garnishee Notices
The ATO can issue a Garnishee Notice to collect any type of tax debt owed by an individual or a business. The ATO will issue the notice to someone who is required to pay money to or holds funds on behalf of that individual or business. This can commonly include Garnishee Notices issued to banks which can result in money being taken from your bank account by the ATO. But in more recent times it has also included Garnishee Notices issued to people’s employers.
Garnishee Notices to employers
The ATO can issue a Garnishee Notice to your employer if you owe a personal tax debt including a director penalty debt. The ATO will require your employer under the notice to pay a percentage of your gross wages to them. So for example if you are earning $100,000 a year the ATO might seek 20% of your gross wages or $20,000 a year.
The bad news about these types of Garnishee Notices is that if you go bankrupt it does not stop them operating. So, using the above example, during a bankruptcy the ATO would still be taking $20,000 a year from your wages. Whereas if you had gone bankrupt before the notice was issued, you would not have had to pay the ATO anything.
So what should you do?
If you have a large tax, bankruptcy may be an option for you. Bankruptcy will mean you will not have to pay the amount you owe to the ATO. However, there are other consequences of bankruptcy and you should get professional advice about all options available before you consider going bankrupt.
Contact us for assistance
If you need help with debts you owe please get in touch with us for a detailed discussion of your best available options.