A lot has been said in the media over the past weeks as to the debt recovery approaches taken by the ATO in relation to outstanding tax debts. Whilst, we're sure, there have been errors made on the part of the ATO, and every claim is worth scrutiny, we thought it would be a good opportunity to describe some of the ATO favourites when it comes to collecting cash from small businesses (that may be due and payable).
An ATO Garnishee Notice is an incredibly powerful tool that the ATO has in its arsenal, which enables it to collect/take/'garnish' funds from your bank account, or even directing that a debtor pay them directly, on your behalf.
We described the Garnishee Notice as incredibly powerful, because, following the issuance of one, the ATO receive tremendous benefit beyond the obvious ability to take cash from wherever it is available. In an insolvency context, any funds paid to the ATO under a garnishee notice are not recoverable by a liquidator (notwithstanding, the ATO generally is an ordinary, unsecured creditor subject to preference payment claims). Also, if you are a sole trader (or an individual) with outstanding tax debts, then a garnishee notice issued for your wages prior to bankruptcy will remain in effect notwithstanding the bankruptcy.
Also, a Garnishee Notice can be served on a super fund (notwithstanding superannuation is largely protected from creditors). However, funds are not payable to the ATO until they would be available to the tax debtor (for example, retirement or death).
If you are served with an ATO Garnishee Notice, either as a debtor or as someone who has to pay funds to the debtor in question, then you should immediately seek advice. Failure to comply is an offence.
We have discussed statutory demands before, here.
The ATO are empowered to use a statutory demand to recover outstanding tax debts owed by companies ('Pty Ltd').
As mentioned in our earlier Blog article, statutory demands do not appear to be an 'official' looking document which can often result in them being ignored.
In the event that the debt in the statutory demand is not paid or the statutory demand is otherwise ignored for a period of 21 days from the date it was served, then a statutory presumption of insolvency exists from that company upon which the ATO can rely to wind up that company and appoint liquidators.
It follows, if you received correspondence demanding payment in 21 days, you need to seek advice immediately as ignoring that correspondence could bring about the end of your company.
Note: you cannot issue a statutory demand on individuals (including sole traders). The equivalent would be a bankruptcy notice (discussed here), however, this would require a judgment (court proceedings) prior to issuance.
Avoiding Garnishee Notices and Statutory Demands from the ATO
It goes without saying that paying your taxes does assist.
However, the realities of business ownership can mean that cashflow is, at times, limited.
In these instances, the ATO does enter into payment deferrals (in which the due date is deferred), payment arrangements (payment plans), and also takes into account hardship in which payment of the tax debt can be avoided in all or part.