Date posted: 18/01/2018 2 min read

CASE: Court sets aside ATO garnishee notices

A company’s non-compliance with an ATO garnishee notice did not give rise to a tax-related liability, the Federal Court has ruled

In brief

  • Non-compliance with a garnishee notice did not give rise to a ‘tax-related liability’
  • ATO garnishee notices to third parties were set aside by the Federal Court

The Federal Court has held that failure to comply with an ATO garnishee notice by the Applicant (“Fyna”) did not give rise to a tax-related liability.

A taxpayer (“Pladmira”) had a running balance account deficit of $777,643.47. The ATO issued a s260-5 TAA 1953 notice to Fyna in respect of Pladmira’s tax-related liability. Afterwards, however, Fyna made payments to Pladmira totaling $455,100 which it owed. In doing so, Fyna failed to comply with the Commissioner’s garnishee notice. 

The Commissioner took the view that Fyna’s non-compliance with the ATO notice gave rise to a “tax-related liability” within the meaning of s 255-1 on the part of Fyna to the Commissioner which was a “debt” within s260-5(1). Accordingly, the Commissioner took the view that he could issue other garnishee notices under s260-5(2) to third parties who owed or might later owe money to Fyna, as “debtor” to the Commissioner. 

Thawley J noted that s255-5 provides that, where there is a “tax-related liability” within the meaning of s 255-1 which is due and payable, it is a debt due to the Commonwealth, payable to the Commissioner. However, s255-5 does not say that any debt due to the Commonwealth is a “tax-related liability” or that a statutory obligation enforceable by action in debt is a “tax-related liability”.

“…the question is whether it is a liability which falls within the definition of “tax-related liability” in s255-1. For it to be such, it must be “a pecuniary liability to the Commonwealth arising directly under a taxation law (including a liability the amount of which is not yet due and payable)...The failure by B to comply with its statutory obligation – to pay money owed to A to the Commissioner instead of A – has the consequence that, upon default, the recipient of the notice could be sued in debt for recovery of a monetary amount. That is a liability which arises because of s260-5 but it is not a liability which arises independently of the giving of a notice, or until there has been a breach of that which is required by the terms of the particular notice issued. It is therefore not a liability “arising directly” under s260-5. The liabilities which arise “directly” under a taxation law are those, as the tables in s 250-10 show, which arise by direct operation or force of the statute.”

Fyna’s non-compliance with the s260-5 notice did not give rise to a “tax-related liability” within the meaning of s260-5(1)(a) and s255-1(1) and the other garnishee notices issued to third parties of Fyna had “no operative effect and should be set aside”.

Fyna Projects Pty Ltd v Deputy Commissioner of Taxation

Summary of judgment in Australian Federal Court case Fyna Projects Pty Ltd v Deputy Commissioner of Taxation (2018) on the power of the ATO to issue garnishee notices to third parties.

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