Under an ATO garnishee notice, the third party that receives the notice usually pays the ATO, not the taxpayer directly. This may be a bank, employer, customer, tenant, contractor, or debtor. The payment reduces the tax debt, while the taxpayer remains responsible for any balance still owing after recovery action.
On This Page
- Introduction
- Who Is Legally Required to Make the Payment?
- How Banks Comply with ATO Garnishee Notices
- Garnishee Notices Issued to Customers, Debtors, and Other Third Parties
- One-Off vs Ongoing Payments Under a Garnishee Notice
- Does the Taxpayer Make the Payment Directly?
- What Happens If the Recipient Fails to Comply?
- Can an ATO Garnishee Notice Be Challenged or Varied?
- Next Steps
- FAQs
Introduction
When the ATO takes debt recovery action, a garnishee notice can have an immediate impact on cash flow and finances. Many taxpayers are surprised to learn that funds can be redirected before they ever reach them. Understanding who is legally required to comply with the notice is an important part of understanding the broader recovery process.
This blog explains who pays under an ATO garnishee notice and how payments are redirected to the ATO.
Who Is Legally Required to Make the Payment for a Garnishee?
Depending on the circumstances, the party required to make the payment may include:
- A bank holding the taxpayer’s funds.
- An employer paying wages or salary.
- A customer who owes money to the taxpayer’s business.
- A contractor, tenant, or other debtor that is due to make a payment.
- A financial institution or other entity holding funds on the taxpayer’s behalf.
Once a garnishee notice is issued, the recipient of the notice becomes legally obligated to pay the specified amount to the ATO instead of paying it to the taxpayer.
The taxpayer remains responsible for the unpaid tax debt. However, the actual payment is often made by the third party that receives the garnishee notice.
How Banks Comply with ATO Garnishee Notices
Banks are among the most common recipients of ATO garnishee notices. When a notice is served on a bank, the bank must review the accounts mentioned in the notice and determine whether funds are available.
If sufficient funds exist, the bank is generally required to transfer the specified amount directly to the ATO as per the notice.
The process typically involves:
- Receiving and verifying the garnishee notice.
- Identifying relevant accounts held by the taxpayer.
- Determining the amount available under the notice.
- Remitting the required funds to the ATO.
- Continuing to comply with any ongoing requirements contained in the notice.
Banks have to legally comply with the notice rather than seek approval from the account holder before making the payment.
Garnishee Notices Issued to Customers, Debtors, and Other Third Parties
ATO garnishee notices are not limited to banks and employers. They can also be issued to people or businesses that owe money to the taxpayer.
For example, if a company has outstanding tax debts and is waiting to be paid by a customer, the ATO may issue a garnishee notice directing that customer to send some or all of the payment to the ATO instead.
Common third parties that may receive garnishee notices include:
- Customers with unpaid invoices.
- Businesses that regularly purchase goods or services from the taxpayer.
- Contractors who are due to make payments.
- Tenants paying rent to a property owner with tax debts.
Other individuals or organisations holding money that would otherwise be paid to the taxpayer.
This can create cash flow difficulties because money expected by the taxpayer is redirected before it reaches them. In some cases, businesses only become aware of the garnishee notice when customers advise that payment has been redirected to the ATO.
One-Off vs Ongoing Payments Under a Garnishee Notice
Not every ATO garnishee notice works in the same way. Some notices require a one-off payment, while others may apply to ongoing or future payments.
- A one-off payment may occur where a bank holds funds in an account, or where a customer already owes a specific amount to the taxpayer. In that case, the third party may be required to pay the available amount directly to the ATO.
- An ongoing garnishee notice may apply where money becomes payable over time, such as wages, rent, recurring customer payments, contract payments, or business income. In these cases, the recipient may need to keep redirecting payments to the ATO until the notice is satisfied, varied, or withdrawn.
A one-off payment may reduce an existing balance immediately, while an ongoing notice can affect cash flow over a longer period.
Does the Taxpayer Make the Payment Directly?
No. In many cases, the taxpayer does not make the payment directly once an ATO garnishee notice has been issued. Instead, the ATO instructs a third party that holds or owes money to the taxpayer to send those funds to the ATO.
That said, the taxpayer remains responsible for the underlying tax debt. A garnishee notice is simply one of the tools the ATO can use to recover the amount owed.
Depending on the situation:
- A bank may transfer funds from the taxpayer’s account to the ATO.
- An employer may redirect part of the taxpayer’s wages.
- A customer may pay an outstanding invoice directly to the ATO instead of the business.
- A tenant or other debtor may be required to redirect payments to the ATO.
Even though someone else may make the payment, the amount paid generally reduces the taxpayer’s outstanding tax debt.
What Happens If the Recipient Fails to Comply?
A garnishee notice is a legally binding direction. If the recipient ignores the notice or fails to comply without a valid reason, they may face consequences from the ATO.
The recipient cannot simply choose to continue paying the taxpayer if a valid garnishee notice requires payment to the ATO.
Potential consequences may include:
- Becoming personally liable for the amount that should have been paid to the ATO.
- Recovery action by the ATO to collect the unpaid amount.
- Additional legal and administrative costs.
- Potential court proceedings in certain circumstances.
For this reason, banks, employers, customers, and other third parties typically take garnishee notices very seriously and act quickly to comply with their obligations.
Can an ATO Garnishee Notice Be Challenged or Varied?
In some circumstances, a garnishee notice may be challenged, varied, withdrawn, or replaced with another arrangement. However, this generally requires proactive engagement with the ATO and supporting evidence.
The ATO may consider reviewing a garnishee notice where:
- The notice contains factual errors.
- The garnishee amount exceeds what is legally available.
- Compliance would cause significant hardship.
- The taxpayer enters into an acceptable payment arrangement.
- There are exceptional circumstances that justify a different recovery approach.
It is important to act quickly if a garnishee notice has been issued. Delays can make it more difficult to negotiate alternative arrangements before funds are redirected.
Next Steps
If you are affected by an ATO garnishee notice, or believe one may be issued soon, taking action quickly can make a significant difference. The earlier you understand your position and explore your options, the more opportunities you may have to manage the situation before further recovery action occurs.
Practical next steps include:
- Confirm the amount of tax debt currently owed and whether any garnishee notices have been issued
- Review recent ATO correspondence, payment demands, and recovery notices
- Assess how a garnishee notice could affect your cash flow, wages, bank accounts, or business income
- Consider whether alternative payment arrangements may be available with the ATO
- Seek professional advice before recovery action causes further financial or operational disruption
Acting early can help you understand your obligations, respond appropriately to ATO recovery action, and minimise the impact on your personal or business finances.
At Halo Advisory, we work with individuals, business owners, and directors facing ATO debt issues. Financial expert Greg Bartels offers a no-obligation consultation to help you understand your position, assess potential risks, and identify practical options for resolving tax debt before enforcement action limits your choices. Get in touch today.
FAQs
If a customer pays the ATO under a garnishee notice, does the taxpayer still have the right to demand payment from the customer?
Generally, no. To the extent that the customer has complied with a valid garnishee notice, the payment made to the ATO is typically treated as satisfying that part of the customer’s payment obligation.
Can a garnishee notice be issued before an invoice becomes due for payment?
In some circumstances, a garnishee notice may apply to amounts that become payable in the future. Whether it applies will depend on the terms of the notice and the nature of the payment arrangement.
Can an ATO garnishee notice affect recurring business income?
Yes. Depending on how the notice is drafted, it may apply to recurring payments such as rent, contract payments, service fees, or other ongoing amounts that become payable to the taxpayer.
What should a business do if it receives a garnishee notice relating to one of its suppliers?
The business should review the notice carefully, confirm its obligations, and seek advice if necessary. Ignoring the notice or continuing to pay the supplier contrary to the notice may expose the business to liability.
Can a garnishee notice affect money held on behalf of a company rather than an individual?
Yes. Garnishee notices can be issued in relation to both individual and company tax debts, provided the third party holds or owes money to the relevant taxpayer.
Does complying with a garnishee notice create a breach of contract with the taxpayer?
Generally, complying with a valid garnishee notice will not, by itself, create liability for breach of contract because the recipient is acting under a legal obligation imposed by law.
Can the ATO issue a garnishee notice even if a taxpayer is continuing to trade?
Yes. A taxpayer does not need to have ceased trading before a garnishee notice can be issued. Garnishee notices may be used while a business continues operating if tax debts remain unpaid.
Can a garnishee notice be issued to a related company?
Potentially. If a related entity owes money to the taxpayer or holds funds on the taxpayer’s behalf, it may be capable of receiving a garnishee notice depending on the circumstances.
Does every garnishee notice require the entire amount owed to be paid immediately?
No. The terms of a garnishee notice can vary. Some notices require a lump-sum payment, while others may require ongoing payments as money becomes available or payable.
