GARNISHEE NOTICES - PAUSE FOR THOUGHT: ZHANG vs COMMISSIONER OF TAXATION

Garnishee Notices - Pause for thought: Zhang vs Commissioner of Taxation

The judgment in Zhang vs Commissioner of Taxation appears a straightforward tax debt decision – but the Federal Court’s summary of the principles affecting garnishee notices gives pause for thought.

In Zhang, the applicant sought relief that the Commissioner could not re-raise previously non-pursued income tax debts due to limitation act provisions. The applicant also sought orders setting aside the garnishee notice which stripped out close to $400,000 in a term deposit.

In support of the application, the applicant raised numerous grounds against the Commissioner which seasoned tax professionals may be unsurprised to hear were unsuccessful.

However, of topical interest is the Court’s comments at [29] in discussing garnishee notices:

“this Court has identified the purpose of the power, which is to protect revenue, but not to subvert the principle that property should not be subject to arbitrary seizure; nor to negate the statutory rights to contest assessments; nor to allow the Commissioner to be motivated in the exercise of his power by improper or collateral purposes, or punishment of the taxpayer…there must be advertence to the quality of fairness, and in that regard the Commissioner must take account of the circumstances of the individual taxpayer, and of the effect on them of the contemplated recovery”

Unlike an audit decision letter or GIC remission refusal, the ATO does not necessarily provide reasons for its actions when issuing garnishee notices. In many cases, the taxpayer may have failed to address tax debts for some time and other recovery attempts may have proven futile. In other cases, the ATO may have been concerned about a dissipation of assets.

But in many real life scenarios, the garnishee notice comes as a surprise. The audit may have been covert with the taxpayer unaware of the ATO compliance activity. Alternatively, the taxpayer may have considered that the use of such a notice as precipitous. In this case, the taxpayer may need to take active steps to identify the grounds relied upon by the ATO before it considers legal action.

Garnishee notices which attach to a business’ trading account can be catastrophic for the taxpayer. The ability to pay staff, suppliers and contractors can be cast into doubt.

However, it leads to an interesting question about recourse. If a garnishee notice is quashed by the Court, the taxpayer may still need to address the underlying assessments with the Commissioner. There are clear statutory processes to be followed in contesting such liabilities, and the Commissioner is typically empowered to continue to collect tax liabilities until they are ultimately addressed at objection, review, appeal or via payment.

See link: Federal Court Judgement

The above post is general in nature and intended only to be a summary of topics of interest. Taxpayers should always obtain specific professional advice in relation to their affairs.

The material in this article is provided only for general information. It does not constitute legal or other advice.

Limited Liability by a scheme approved under Professional Standards Legislation.

Read the Smailes Krawitz Disclaimer HERE.

Alan Krawitz9 October 2025