Unsure what a garnishee notice is, or exactly what you need to do if you receive one? To make things easy, we’ve taken it back to basics for you.
What is a garnishee notice?
A garnishee notice is a serious document sent by the ATO (and other creditors). It demands payment for unpaid tax debt where initial attempts, such as sending reminders, using tax refunds, or calling in an external collection agency, have failed.
Rather than being sent to the person with the outstanding debt, a garnishee notice is sent to a third party that owes or holds money to or for them, for example an employer, customer or bank. By doing this the ATO can bypass the tax debtor to retrieve the amount owed.
Two types of garnishee notices can be issued:
- Point in time notices – this demands a one-off payment e.g. the bank must pay the full tax debt, or 30%, out from the account of the debtor, whichever is less.
- Continuing notices – this demands continuous payments e.g. the bank must pay what is currently in the account as well as any future deposits.
If a creditor other than the ATO wishes to send out a garnishee notice, they must apply through the courts and be granted permission to do so.
How do I know if a garnishee notice has been sent?
If you or your company has an outstanding tax debt that resulted in a garnishee notice being sent, the ATO will send you a copy to make you aware of what’s happening.
If you have unpaid tax debt, and have ignored previous requests to pay up – including a notice of intended legal action, a firmer action warning letter or a notice of intended garnishee – receiving one shouldn’t come as a total surprise.
What should I do if I receive a notice of garnishee?
If you receive notice that a garnishee has been sent, you need to act fast. Worst case your bank may have already wiped out your account. If it hasn’t, or the notice demands future deposits, by taking action straight away you may be able to minimise the damage or get the notice withdrawn.
Although unlikely, if the garnishee notice has come as a surprise, there is a chance that it may be invalid. In fact, there have been instances where the ATO has issued them before actually assessing the tax. If this is the case, you best move is to speak to a tax lawyer.
You should also check to see if the right name is on the notice. If it’s not your name or the name of your company, you should write to the bank straightaway requesting they don’t transfer money from your account.
If the notice is valid and your money is still in your account, transfer out the funds as soon as possible to preserve them. This might give you enough time to talk to the ATO and ask them to withdraw the notice and organise a payment plan.
If the money has already gone from your account you should consider opening a new bank account and asking your debtors to use that instead. This will give you breathing space to deal with other financial commitments e.g. staff, suppliers. If there’s debt remaining, you should look to organise a payment plan to bring it under control.
What types of payment plans are available?
ATO payment plans usually involve paying the full debt in instalments over a 12 month period. By entering into one you can bring down your tax debt by reducing penalties and interest. Importantly, you must still meet all your ongoing lodgement and payment obligations during this payment period.
What if I am unable to get a payment plan?
If you cannot come to an agreement with the ATO about paying your debt, they may accept an offer of security – such as a mortgage or unconditional guarantee from an Australian Bank – in return for deferring the payment of your debt.
Your next option is to apply for a tax debt loan. This can give you enough funds to cover the up-front payment.
If you cannot secure either a payment plan, security agreement or tax debt loan, the ATO may issue either a director penalty notice, holding you liable for the debt, or a statutory demand and begin legal proceedings to wind things up.
Don’t stick your head in the sand
Being informed that you or your company has been the recipient of a garnishee notice is not great news – but with fast action, and the right kind of action, it doesn’t have to be the start of a downward spiral to liquidation or bankruptcy.
Ideally, you shouldn’t let it get to this point at all. So, if you are struggling to pay your tax debt don’t just wonder what to do and hope it works out. Instead, speak to an insolvency professional as well as the ATO who will try their best to offer you an olive branch.
For more information on business tax debts, check out our tax debt page here.
Have you been issued with a garnishee notice, or are worried you might be? contact us today so we can give you certainty about your situation and help you go over your options.