EXPANSION TO ATO GARNISHEE POWERS IN THE FEDERAL BUDGET

Tucked away in the Budget papers under the heading ‘Protecting the tax system against fraud’, the Government has announced that the ATO’s existing garnishee powers ‘will also be expanded to include jointly held assets in circumstances where such arrangements are being used to frustrate recovery actions.’

The ATO presently has the power to issue garnishee notices to banks and debtors of a taxpayer who owe tax liabilities and demand immediate payment. Failing to comply with such notices is a criminal offence. Accordingly, a well-timed garnishee notice can immediately drain a bank account of funds.

Garnishees can be dramatic; whilst they can be limited to a certain percentage of available funds, the Commissioner can seek to deplete the entirety of a debtor’s bank account, or the full amount of the alleged amount owed, whatever is lower. If that bank account targeted is an operating or working capital account, a business owner (especially in the hospitality and construction industries) may have immediate problems in paying their employees, contractors, suppliers and landlords, to name a few. Business continuity can be disrupted, often fatally.

Garnishees can come out of the blue, including in tandem with a covert audit. However, in most circumstances, they are a tool used by the Commissioner as a means of significant escalation after prior attempts to recover the debts and seek engagement from the taxpayer has failed. Understanding when a garnishee risk is present and likely to arise is key to avoid that continuity disruption and getting on top of issues which simply do not fall away.

It appears that the Government is concerned with the intermingling of the assets of the tax debtor with a related party who does not owe tax liabilities stymieing the execution of these notices.

Like any Budget announcement, the devil will be in the legislative detail. Having potentially ‘innocent’ third parties (such as spouses etc) at risk of asset seizure is obviously a grave step. Query if it is for the ATO officer to form the opinion if there have been active steps to frustrate recovery action opening the door for a garnishee notice on a jointly held asset (such as a bank account). Query whether that decision will be reviewable. Query what recourse an innocent party may have at law.

Smailes Krawitz routinely acts for taxpayers navigating complex trusts, tax, succession planning, and re-structuring matters. Seeking early advice on the application of any concession, exemption, rollover, re-structure or transfer of assets or wealth can save vast amounts of time and money down the road.

Feel free to reach out to the Smailes Krawitz team should you have any queries about the Budget, these new garnishee measures or tax debts generally.

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