ATO garnishee notices: how they work and whether they can be lifted

What a garnishee notice is

Under its statutory powers, the ATO can require any third party who holds money for you, owes money to you, or will owe money to you, to redirect some or all of it to the ATO to pay your tax debt. The notice goes to the third party — your bank, your employer, a customer — and they are legally required to comply. You receive a copy, but compliance doesn't wait for your agreement, and there is no court hearing first.

Garnishees sit high on the ATO escalation ladder. They typically follow ignored reminders and firmer-action warning letters, unanswered calls, or a defaulted payment plan. The ATO's own guidance says it considers your circumstances before issuing one — but in practice, the common thread in garnishee stories is a period of no contact.

The three main targets: bank, employer, people who owe you

1. Your bank or financial institution. The most common. The bank must search for accounts in your name and pay the ATO from your credit balances. This includes business trading accounts, savings and term deposits (a garnishee over an investment can sit there until maturity). Money already taken? Start here: the ATO took money from my bank account.
2. Your employer (for individuals and sole traders with wage income). The employer withholds a slice of each pay and sends it to the ATO until the debt is cleared. ATO policy is to take no more than 30 cents in each dollar of salary or wages, to leave you able to live.
3. People who owe you money. For businesses this is the one that hurts: the ATO can garnishee your trade debtors (customers with unpaid invoices), merchant card facilities (a percentage of every day's EFTPOS takings), the proceeds of a property sale sitting with a solicitor or agent, or rent owed to you. Your customers learning about your tax debt via an ATO notice is a real commercial cost over and above the money.

How much they take: one-off vs continuing notices

Every notice specifies what the third party must pay, and notices come in two shapes:

Common working figures: wages — usually up to 30 cents in the dollar; bank accounts — up to the lesser of the debt or the available balance, though for trading businesses the ATO often limits a notice to around 30% of funds so the business can keep operating; merchant facilities — a stated percentage of daily settlements. The percentages are policy, not law — which also means they're influenceable (below).

How you find out — and what the copy notice tells you

The ATO sends the notice to the third party and a copy to you, usually by post to your address on file. In practice the sequence most people experience is: money missing or a pay short, then a confused call to the bank or employer, then the copy letter surfacing in a mail pile. When you get the copy, read it for four things:

• Who it was served on — one bank, or several? Your employer? A named customer? Each recipient is a separate notice, and knowing the spread tells you what's still exposed.
• Whether it's point-in-time or continuing — the operative words are usually "the lesser of" (one-off) versus "each amount" or "until the debt is satisfied" (continuing).
• The amount or percentage specified — this is the ceiling on what each payment event can take.
• The debt figure it's collecting — check it against your ATO account. Estimates based on unlodged returns can be inflated, and lodging actual figures can shrink the target.

If you can't find the copy, your bank can confirm the notice details and the ATO will confirm what's on foot — better to ask than to guess whether next week's deposits are safe.

Can a garnishee be lifted or negotiated? Usually, yes

The ATO can vary or withdraw a garnishee notice at any time, and its stated position is that it will consider any reasonable request — provided suitable alternative arrangements are made for the debt. In practice, the sequence that works looks like this:

1. Get lodgments up to date. Nothing gets negotiated while returns are outstanding — currency of lodgment is the ATO's precondition for almost everything.
2. Put a credible payment proposal on the table. A payment plan the numbers actually support — often with an upfront component — is the standard trade for withdrawal or variation of a garnishee. Debts under $200,000 can even be set up online, though after a garnishee it's usually worth negotiating by phone or through an adviser.
3. Raise hardship specifically. If the garnishee stops you paying wages or buying stock — i.e. it's killing the source of repayment — say so with figures. Varying a notice that defeats its own purpose is a request the ATO grants regularly.
4. Ask about interest. With GIC at 11.43% a year compounding daily and no longer deductible, GIC remission is worth raising in the same conversation.

Engagement is also the vaccine against the next one. Repeat garnishees overwhelmingly land on taxpayers the ATO regards as not engaging. Once a plan is in place and being kept, further garnishee action on that debt generally stops — that's the deal, and it holds as long as the plan does.

Companies, directors and sole traders

• Companies: the notice attaches to money held or owed to the company — accounts, debtors, merchant takings. Directors aren't personally touched unless a Director Penalty Notice has made the debt personal, after which the ATO can garnishee the director's own accounts and wages.
• Sole traders: there's no line between you and the business, so business and personal accounts, and your customers, are all exposed. See sole trader ATO debt.
• Joint accounts and overdrafts have their own wrinkles — covered in the bank account guide.

If you can't resolve it

A garnishee that can't be negotiated away is usually a symptom that the debt itself needs restructuring rather than deferring. For companies that are viable apart from the tax debt, small business restructuring stops enforcement (garnishees included) while a formal proposal is put to creditors. If the business isn't viable, better to learn that from an adviser this month than from an empty account next quarter. Either way, the worst-performing strategy on record is waiting for the ATO to lose interest — it doesn't. See what to do when you can't pay.