Despite the hard work of business leaders, there are always examples of companies running into financial distress and experiencing poor cash flow. Many businesses find alternative ways to pay these bills and other finances, yet some aren’t so lucky and could find themselves facing an Australian Taxation Office (ATO) Garnishee.
This measure can have a significant effect on your company’s future which means it is important to understand what an ATO Garnishee is, what the most common types of Garnishees are and what to do if your enterprise is issued with one.
Under Section 260-5 of the Taxation Administration Act 1953, the ATO issues Garnishee Notices to companies (the taxpayer) to receive taxation amounts not paid on time. With the ATO responsible for collecting taxes from millions of individuals and businesses every year, compliance remains a major issue and Garnishee Notices are just one avenue for the authority to collect what is owed.
Of course, it is in the best interest of all parties to pay taxation amounts when due. However, as a result of cash flow issues or other financial situations, many businesses find themselves in this difficult position.
There are two common types of ATO Garnishee’s that are issued Australia wide – Garnishee to Debtors and Garnishee to Bank Accounts. While they are very similar in the fact that the ATO is paid the taxation amount due, the manner in which they operate is slightly different.
Garnishee to Debtors
In this scenario, the ATO issues a Garnishee to funds being paid from the company’s debtors. These debtors are provided a letter from the authority stating that all money to be paid to the company be redirected to the ATO. In essence, in an effort to reduce your debt to the ATO, all payments from particular debtors aren’t transferred into your account – instead paid to the authority.
Your business is notified of this change and this can apply to merchant card facilities, trade debtors or individuals that owe your enterprise money.
Garnishee to Bank Accounts
Alternatively, the ATO can target your other main source of money – business bank accounts. To collect outstanding taxation charges, the authority has the power to serve a Garnishee notice on your bank accounts. As such, your financial institution or bank is issued a letter to release funds from a particular account directly to the ATO.
It is important to remember that the authority will specify when payments from the bank account will be made and how much money they are collecting.
The ATO has the power to collect outstanding taxpayer money – regardless of your financial situation at the time.
This means that if revenue is not available through debtor payments or bank accounts, it can have a serious impact on your business operations. For example, you may have insufficient cash to pay employees or other creditors which you owe.
As a result, until the ATO Garnishee is lifted, the business may find it difficult to make simple payments or continue trading within the market. This is a serious issue and requires the assistance of experts such as the team at Corporate Lifeline.
Thanks to our years of experience involved in the Australian corporate environment, we are always ready and willing to help businesses dealing with ATO Garnishees. Regardless of whether one has been issued in relation to a tax debt or you are concerned about this prospect in the future and need more information.