Have you received a copy of a Garnishee Order in the mail? If so, your bank account may have been emptied and you have been left panicked and confused. You might be thinking can the ATO freeze your bank account? Unfortunately – it can.
Implications of receiving a Garnishee Order
A Garnishee Order is one of the tools in the ATO debt collection arsenal. It is sent out to a Third Party demanding payment of any money owed to you straight to the ATO. This payment is made to satisfy your tax debt. Any creditor you owe money to can apply for a Garnishee Order through the court. However, the ATO can send them without a court order.
Having a Garnishee Order issued against your company is a sign the ATO is getting serious about recovering their debt. If you don’t take appropriate action, the ATO could start action to wind up the company or force you into bankruptcy.
What is a Garnishee Order
The ATO can issue a Garnishee Order to a person or business that holds money on your behalf or owes money to you. This requires them to pay your money directly to the ATO to reduce your tax debt. A Garnishee Order is most commonly issued to a company’s bank, a company’s debtors (accounts receivable) or a merchant facility provider. You will simply receive a copy of the notice issued.
The ATO will issue one of two types of Garnishee Notice to your bank. These are either a Point in Time Notice or a Continuing Notice.
Which type of Garnishee Notice has been issued by the ATO?
Point in time notice
A Point in Time Notice is a one-off payment to the ATO. This type of Garnishee Notice will generally require your bank to pay the full tax debt out of your account, or 30% of the balance held, whichever is less.
A continuing notice is exactly as it sounds. You will have to make continuing payments to the ATO. So your bank will be required to pay the money held in your company’s bank account, as well as amounts deposited in future.
How do you know if a Garnishee Order will be issued?
While the ATO doesn’t need permission from the court to issue a Garnishee Order, it is rarely the first action they initiate to recover the debt. If you have received a copy of a Garnishee Notice from the ATO, it’s likely you have been ignoring previous recovery attempts. You might expect an ATO Garnishee Order if you:
- Have an outstanding tax debt which is not on a payment plan.
- Are not engaging with the ATO to seek to enter into a payment plan.
- Have received various warning letters such as a Notice of Intended Legal Action, a Firmer Action Warning letter or a Notice of Intended Garnishee.
How does the ATO know who to send the Garnishee Notice to?
The ATO will have your bank details on file for BAS or income tax refunds, or possibly from other ATO correspondence.
You may have provided your debtor information to the ATO if you submitted an accounts receivable to them when seeking an ATO payment plan.
What you can do if you have received an ATO Garnishee Notice?
Act quickly! If you have ignored previous warnings from the ATO, now is the time to act before things escalate further.
First, check whether the funds are still in your bank account. If so, you may be able to transfer out the funds to preserve them. This might also allow you time to negotiate with the ATO for them to withdraw the issue and organise a payment plan.
You should also check that the details of the notice are correct, even the smallest errors, such as a typo, may render the notice invalid.
How to Stop a Garnishee Order
If the Garnishee Order has been issued and the bank has already paid your money to the ATO, you need to take action to stabilise your cashflow to ensure the ongoing viability of your business. The best option here is to open a bank account with another bank and advise your customers to pay to this account.
If there is a remaining balance of the debt after the ATO payments, you need to pay the debt or enter into a payment plan to bring the debt under control. This will prevent further recovery action by the ATO.
Entering a Payment Plan with the ATO
A payment plan generally requires you to pay the full debt amount within 12 months – as well as meet your ongoing lodgement and payment obligations. A Payment plan can reduce the tax debt through a remission of penalties and interest.
In some cases, Tax Debt Resolved obtains 2 or 3-year arrangements, or even 5 years if security is given. Payment plans comprise of monthly or weekly instalments and may require an up-front payment.
If you’re struggling to obtain a payment plan, a tax debt loan may provide sufficient funds for the up-front payment.
What if you can’t get an ATO payment plan or you suspect your company is insolvent?
Receiving a Garnishee Notice is a clear warning sign of problems in your business. It also suggests potential insolvency – your company is unable to pay all of its debts by their due dates. If you think your company might be insolvent, visit Revive Financial to take the 16 step guide to company insolvency.
If you are unable to obtain a payment plan for your ATO debt, the ATO may issue a:
- director penalty notice making the directors personally liable for the company’s outstanding PAYG and superannuation debts.
- statutory demand and commence winding up proceedings to place your company in liquidation.
To avoid such action, it’s important to seek professional advice urgently to help deal with your situation. If you don’t, the ATO will take the decision out of your hands.
How do you avoid receiving a Garnishee Notice?
If you fear the ATO might have your company in their sights for a Garnishee Notice – it’s not too late to turn things around. The ATO will look favourably on someone who takes matters into their own hands and initiates action to pay the debt. Don’t put your head in the sand – get on the front foot and contact the ATO to explain your situation.
When operating a business it is important to lodge your returns on time, or as soon as possible, and if you can’t pay, submit a payment plan proposal at the time of lodging. Hiding your debt from the ATO by withholding lodgements doesn’t work. It will only make matters worse.
Call in the experts
Negotiating with the ATO can be a horribly daunting experience – especially when they have issued a Garnishee Notice. Working your way out of this situation can be incredibly complex – even for your company accountant or lawyer. Tax Debt Resolved specialises in these situations. We have the necessary skills and expertise to negotiate with the ATO on your behalf. We can help to turn your situation around. Don’t deal with your problems alone. Speak to us to navigate through your difficulties and regain control of your business.