The ATO can issue a garnishee notice to anyone who holds money on your behalf or who owes you money. The garnishee notice will cause your money to be paid to the ATO to reduce your tax debt.
The most common target for an ATO garnishee notice is a company’s bank to recover money to pay a company’s tax debt. This article looks at an example of what can happen if the ATO issues a garnishee notice to a company’s bank and what could have been done to minimise the risks.
A client was referred to us recently by one of our partners. The client was a director of a civil design engineering company. The company owed more than $1 million in tax and the ATO had been threatening to take recovery action for some time.
What happened?
On the day we met our client, the ATO had issued a Garnishee Notice to the company’s bank. In compliance with the Garnishee Notice, the bank paid more than $120,000 to the ATO. There was nothing our client could have done at that point to stop the transfer.
As the company was now short of at least $120,000, this meant that the business’ cash flow was immediately impacted. The business had trouble paying fortnightly wages to staff, rent and other expenses. Having received our advice, the director immediately sourced alternative funds to keep the company trading.
What should the director have done?
Our client should have sought the advice of a professional earlier on. An insolvency professional could have assisted the business or help put up a strategy in dealing with its debts. Part of the advice which we would have given would have helped minimise the risk of the ATO issuing a garnishee notice.
What was the outcome?
With our assistance, the director restructured the business, including liquidating a loss-making company within the group and the closure of 3 of their offices. This however was more difficult than it should’ve been due to the loss of more than $120,000 form their bank account. The outcome would’ve been better had the company been able to utilise the $120,000.
Contact us for assistance
If your company is unable to pay its tax debts, you should seek advice from a professional. We will be able to provide you with advice to minimise the risks of losing company funds due to ATO issuing a garnishee notice.
Contact us now for a free no obligation discussion about the circumstances of your business.
