ATO crackdown sees rise in garnishee orders

Small businesses with outstanding tax debts are the latest targets of the Australian Taxation Office, which is increasing its use of garnishee orders to withdraw funds direct from taxpayers’ bank accounts.

A garnishee order is an order made by the court allowing businesses and organisations to recover the judgment debt from the debtor’s bank account or wages.

According to the ATO the number of garnishee orders issued in relation to small businesses with a turnover of less than $2 million fell by 8.8% from June 30, 2009 to June 30, 2010.

But since the second half of 2010 accountants have claimed the ATO will not enter into payment arrangements as easily as 12 or 24 months ago at the height of the global financial crisis.

Clyde White, a business recovery partner at HLB Mann Judd, says the ATO’s collection process has intensified significantly, which is putting garnishee orders on accounts.

Another trend emerging from the crackdown is that if a business is allowed a repayment plan to meet an outstanding tax liability the ATO also issues a penalty notice in case the business fails to pay.

Under the penalty notice a director might have 21 days to pay or the company is put into liquidation or administration, or the director becomes personally liable.

According to an ATO spokesperson the department needs to take firmer action to recover outstanding tax debt in order to maintain a level playing field for taxpayers.

“Our approach takes into account individual circumstances to determine the best way to clear your debt,” the spokesperson says.

“For business we may also review viability to determine the appropriate firmer action to take. Firmer action will not be taken if you are complying with an agreed payment arrangement including lodging and paying current obligations on time.”

The spokesperson says firmer action will be taken in the following instances: 

• You choose not to work with the ATO despite its repeated attempts to contact you.
• You repeatedly default on your payment arrangements.
• Your debt is escalating and there is no evidence that you will be able to meet your ongoing tax obligations.
• You have been subject to an audit where deliberate avoidance was defected and payment avoidance is continuing.
• For business operators, where there is evidence that liquidation is being used to avoid financial obligations, without risking assets and with the full intention of resuming business operations through a new entity.

 According to the spokesperson there are various measures you can take if firmer action is being taken against your business, the most obvious of which is to pay the outstanding debt in full.

“We will consider deferring firmer action if you make an agreed lump sum payment towards your outstanding debt and enter into a direct debit payment arrangement for the balance of the debt,” he says.

“For businesses with a debt greater than $100,000 you will need to demonstrate that your business is viable before firmer action is deferred.”