First up, if you have recently received a garnishee notice and wondering what it all means we have a lot of resources on our website. It is important to move quickly as doing nothing is not an option once this is in place.
So generally, your accountant has provided you the garnishee notice or your bank account has been frozen and an amount removed from your account – generally 30%.
What does this actually mean? The garnishee is a mechanism used by the Australian Taxation Office (“ATO”) to collect any unpaid taxes. They are used after a period of either no communication or a failure to meet a payment arrangement
Your bank or a client has received a notification from the ATO which has required them to transfer an amount to them. This is a formal notice and there is very little that you are able to do about it in the first instance.
In practical terms, this means that the ATO has accessed your bank account and removed money. This money has been used to pay off against your existing tax debt.
Why has this happened?
Either you have had a payment arrangement that has failed or you have not been communicating with the ATO. This step is usually something that happens after there has been issued raised by the ATO or they have been unable to get a hold of you.
What will my bank do?
It is important to understand that for many banks this is a serious red flag and they will review your entire banking facilities. This may include putting your freezing your account, not allowing direct debits to be processed or simply not allowing the account to be used. If you have borrowings, these may be called in or put into default at the same time. It will all depend upon the relationship with the bank and whether or not they believe that you are a high risk.
In our experience this is the time for an open communication with the bank, especially where you have one banking arrangement only one business bank account.
What can I do?
Generally this notice is at the end of a long period of non-compliance, or where you have failed to make a payment under a payment arrangement. This should not be unexpected but can be jolt for some businesses to take steps to commence negotiations with the ATO.
Your options are generally limited in getting the money back from the ATO. If there is a significant liability still attached, there is a likelihood that they will undertake a second garnishee or even a rolling garnishee.
Our initial approach is to make sure that your compliance is up to date and that you have all your BAS’s lodged. Without these, it is almost impossible to have the ATO agree to a payment arrangement.
From here discussing with the ATO and getting a new payment arrangement or a replacement payment arrangement is the approach, looking at the viability of an arrangement and making sure that the Commissioner will be willing to facilitate the proposal. This is especially important where you intend to keep running the business under the same structure.
During this time it is suggested that you commence a secondary banking arrangement in order to ensure that there is a bank account that you have full access to during the negotiation period with your bank and the ATO.
Can I get these notices personally?
The ATO has an ability to personally levy directors and will use this at the same time of the company or business notice if there has been a period of no communication or non-compliance. This can be significant where you have commitments such as mortgage payments or credit card payments that are due at the same time that the payment is withdrawn.
Dealing with these are different to the garnishee notices for businesses and there are mechanisms to deal with these.
The garnishee notice is something that can be devastating for businesses. You need to take steps to ensure that your business is not in a position where it struggles to continue or fails.
The important component is to communicate with your bank and ensure that you retain access to the bank account. If your bank advises that they will be freezing all access, it is important to establish a second banking arrangement immediately and facilitate a different payment regime – either a temporary credit card facility or directing proceeds to a different account.
If you have direct debits that will be missed, it is important to either direct these to a different account or to communicate with the supplier and ask them to delay them for a week. For many businesses the garnishee becomes a flow on problem as there are transactions that are declined as a result or supplies are ceased.
Equally there are times where the ATO will levy these on your clients as well, especially if the original garnishee has been unsuccessful. The damage to your business if this occurs will be significant and it is valuable to get on the front foot and talk to your customers before this becomes a problem.
The garnishee can be a major problem for businesses and often it is the time to call in external help. We find that many operators take this opportunity to re-analyse their business or take steps to bring the business to an end. As the garnishee is the end rather than the start of the process, it is necessary to take a hard look at your business and it’s viability, if you are unable to bring the issues under control or a solution is only a short term fix, it may be better to bring things to an end.
Equally the garnishee may be a time to re-analyse your business, and whilst time is short there is a small window to take serious steps to bring the business back into profitability. We suggest an all encompassing approach, looking at accounting systems and reports, debtors and creditors and whether or financing arrangements are suitable.
What if I want to bring the business to an end?
If you decide that it would be a better approach to bring the business to an end there are a few steps that you need to take. We cover this in our discussion on the options to bring a business to an end but some of the basics you should consider are:
- What happens with staff and staff entitlements
- What notice do you need to give?
- Lease and lease obligations
- Personal guarantees and terms of trade
- PPSR and selling your assets
- What happens to the trading entity
- Communicating this to staff and customers
Whilst the garnishee notice is confronting and can be a shock for business owners, on the positive, use the opportunity to analyse your business and see if there are opportunities to bring the situation under control.
Getting advice early is important and being prepared to take decisive steps is the key to getting through the process.