Key points
- A garnishee notice requires a third party, such as your bank or a customer, to pay money owed to you to the ATO.
- The ATO sends a warning letter first. That letter is the time to act.
- An agreed payment arrangement, or paying the debt in full, can lead to the notice being varied or revoked.
A garnishee notice is the ATO's way of collecting a debt directly from someone who owes you money or holds money for you. For a business, that usually means your bank, your customers, or anyone holding funds on your behalf. It can freeze working capital at the worst possible moment, so it's worth knowing how it works before one arrives.
How a garnishee notice works
The ATO issues the notice to a third party, not to you. The notice requires that third party to pay the ATO money they owe you or hold for you, up to the amount specified. A bank may be required to pay funds from your account. A customer may be required to pay your invoice to the ATO instead of to you. The third party must comply, and you'll receive a copy.
The warning letter comes first
The ATO says it sends a warning letter before issuing a garnishee notice, advising you to pay the debt and noting that a payment plan may be possible if you can't pay in full. That letter is your best opportunity to act. Once a notice is with your bank or customers, cash flow and relationships both take a hit.
What it does to a business
- Funds in the business account can be paid to the ATO, leaving less for wages and suppliers.
- Customers learn the business has a tax debt, which can affect trust and payment terms.
- Lenders may see an active garnishee as a sign of distress, which narrows the field for unsecured finance.
How businesses get a garnishee lifted
- Contact the ATO immediately. Explain the position and what you can pay. An agreed arrangement can lead the ATO to vary or revoke the notice.
- Get lodgements up to date. Overdue lodgements make every option harder.
- Pay the debt in full. Clearing the balance ends the notice. If the business is viable but short of cash, a loan secured by property, such as a caveat loan, can sometimes be arranged within days.
- Get advice from your accountant, and from an insolvency practitioner if the debt can't realistically be paid.
Finance options with a garnishee in place
Unsecured lenders often decline while a garnishee is active, because the bank account they assess is being drawn on by the ATO. Property-backed lenders focus on the security and the exit instead, which is why property-backed loans are the usual route. If the business doesn't own property, an unsecured lender may still consider the application once an arrangement with the ATO is in place. See ATO debt funding.
General information only. It doesn't take your circumstances into account and isn't tax, legal or financial advice. Speak to your accountant or a lawyer about your situation.