The Australian Taxation Office (“ATO”) can issue a Garnishee Notice to someone that holds money on behalf of a company or individual or who may be liable to pay money to that entity.
Most commonly Garnishee Notices are issued to banks (who hold money on behalf of a company or individual) or debtors (who owe money to a company or individual).
A Garnishee Notice requires the recipient of the notice to pay funds to the ATO in lieu of a company’s or individual’s taxation debts. For example the ATO may issue a Garnishee Notice to a company’s bank, requiring the bank to pay all or a percentage of all funds held in the company’s bank accounts to the ATO up to the amount of the company’s taxation liability. A Garnishee Notices provides the ATO with a “charge” (a form of security) over the property which the notice is issued against and it is an offence for the recipient of a Garnishee Notice not to comply with the terms of the notice.
A Garnishee Notice issued in respect of a trading company can have significant adverse effects on that company’s financial position. This is because funds which may have been available to pay wages or outstanding trade creditors and other debts will instead be paid to the ATO.
Given the possible significant adverse effects of a Garnishee Notice, it is important for companies which fall behind in payment of their tax obligations to be proactive in their dealings with the ATO If discussions are not commenced with the ATO regarding a manner in which tax debts may be repaid, the ATO is more likely to take recovery action including the issuing of a Garnishee Notice in respect of a company.
Garnishee Notices Issued to Employers
Recently we have advised and assisted a number of individuals who have been subject to Garnishee Notices which have been issued to their employers. In these circumstances the ATO has issued a Garnishee Notice to an employer to garnishee a percentage of future income payable to the individual debtor. The ATO takes the position in these circumstances that the Garnishee Notice will not be invalidated by bankruptcy and the individual’s employer will be required to continue to pay required amounts under the notice during the period of bankruptcy.