Can the ATO garnishee my customers or clients?

How a debtor garnishee works

The notice goes to your customer, not to you. It tells them that they owe you money, that you owe the ATO, and that they must pay the ATO out of what they owe you. A one-off notice covers invoices outstanding on the day. A continuing notice covers amounts that become payable later as well, which matters for a customer you invoice every month.

• The customer is legally required to comply. A customer who pays you instead of the ATO after receiving the notice can be made liable to the ATO for that amount, so most comply carefully.
• Their payment to the ATO counts as payment to you. You cannot chase them for it again.
• You receive a copy of the notice, often after the customer has already been served.
• The ATO finds your customers from your own records: BAS, invoices produced in an audit, taxable payments reports, and payment data from card providers.

The business debtor garnishee page covers the mechanics in more depth.

Who usually gets the notice

The ATO tends to aim for the biggest and most reliable flows of money:

• Head contractors and major customers, especially in building, transport and labour hire where one or two customers make up most of the revenue.
• Merchant facilities. A notice on your EFTPOS or online payment provider redirects card takings before they reach your account.
• Property settlements. If you are selling a property, the ATO can serve the solicitor or agent holding the proceeds.
• Government and large corporate payers, who have compliance teams and will process the notice without discussion.

The commercial damage is the real cost. A customer who receives an ATO notice now knows you have an unpaid tax debt, and some will quietly start looking for another supplier. That is why a debtor garnishee is worth more effort to resolve quickly than a one-off bank notice. It is also a clear sign that the ATO regards the debt as one it will pursue with firmer action, which can include a director penalty notice if the debt includes PAYG withholding, GST or super.

What to do

1. Call the customer first. Do not pretend it has not happened. A short, factual call explaining that you are dealing with the ATO and that they should comply with the notice preserves the relationship far better than silence.
2. Get lodgements current. Any unlodged BAS or return needs to go in before the ATO will talk about withdrawing the notice.
3. Propose a payment plan and ask for withdrawal in the same call. The ATO says it may withdraw or vary a notice once suitable payment arrangements are made. A payment plan funded from ordinary cash flow is usually what it wants to see. Ask for the withdrawal in writing so you can show the customer.
4. Look at the numbers honestly. If the debt is larger than the business can repay from its own trading in a reasonable period, a debtor garnishee is often the point where small business restructuring or another formal option becomes the sensible conversation. Those options stop enforcement once a practitioner is appointed, but they need to be entered deliberately and with advice.

What to do next

1. Phone the customer who received the notice, confirm what it says and tell them you are dealing with the ATO.
2. Bring all lodgements up to date so the ATO can see the full position.
3. Call the ATO on 13 11 42 with a payment proposal and ask for the notice to be withdrawn in writing.

More questions: 8 Garnishee notice questions questions answered · Full guide: Garnishee notices