Garnishee – recovery of debts

Debts Recoverable by Garnishee

This information is about recovering a debt by means of a garnishee notice.

Who can a garnishee notice be issued to?

A garnishee notice may be issued by the tax department to any person who:

• owes money to the debtor, or
• holds money for or on account of the debtor, or
• holds money on account of some other person for payment to the debtor, or
• has authority from some other person to pay money to the debtor.

A garnishee notice can be issued to a person’s employer, bank or solicitor.

A garnishee is also available against a debtor where a judgment is obtained by a creditor.

 A copy of the garnishee notice must be given to the debtor.

 The person who has been issued with a garnishee notice becomes a garnishee debtor.

 What information is contained in a garnishee notice?

The notice requires the garnishee debtor to pay:

• an amount specified in the notice, which is no more than the amount of the debt or than the amount that can be recovered from the garnishee debtor, or
• an amount or percentage specified in the notice out of each payment that the garnishee debtor will become liable to pay the debtor from time to time, until the debt is satisfied.

When must the payment be made?

The date by which payment must be made is specified in the notice. This date cannot be before either:

• the money becomes due, or is held by the garnishee debtor, or
• before the end of the period of 14 days after the notice is given.

 Compliance with a garnishee notice

A person cannot refuse or fail to comply with a garnishee notice to the extent to which they are capable of complying with the notice. The penalty for failure to do so is 12 months imprisonment.

 If the garnishee debtor fails to comply with the notice, the amount of the debt outstanding is recoverable from the garnishee debtor by means of:

• legal proceedings, or
• a garnishee notice.

 The amount outstanding is the lesser of the amount the:

• garnishee debtor was required to pay at that time, or
• original debtor was required to have paid at that time.

 If an amount is recovered from either the original debtor or the garnishee debtor, the amount reduces the balance of both debts.

 Payments made by garnishee

Payments made by a garnishee debtor are taken to have been made with the authority of the original debtor.

 When the debtor or anyone on their behalf makes a payment, the garnishee debtor must be notified that the debt has been reduced by the amount paid.

 Garnishee of term deposits

Where a garnishee notice is issued to a financial institution against a term deposit, the notice immediately attaches to that account. However, the financial institution is not liable to pay the garnisheed amount until the term deposit matures or is terminated by the recipient.

Garnishee of trust funds

The only circumstances in which a garnishee notice may be issued against a trust fund are when the:

• debtor is owed money by the trust fund, or
• trust fund does not have the true nature of a trust

 A garnishee notice should not be issued against a trust fund:

• where the debtor is a beneficiary of the trust, but is not owed money by the trust, or
• where the trust does not appear to have the true nature of a trust, but this is due to a breach of the trustee’s obligations as a trustee (the trustee’s fiduciary duties) rather than a defect in the creation of the trust.

 

Garnishee of superannuation funds

A garnishee notice should not be issued against a superannuation fund under any circumstances.

 Garnishee notices & deceased estates

Under no circumstances should a garnishee notice be served on the executor of the estate of a deceased recipient.

 Under section 89 of the A New Tax System (Family Assistance) (Administration) Act 1999 a garnishee notice may be issued against a person who ‘holds … money for or on account of the debtor’. An executor cannot be said to hold an estate ‘for or on account’ of the deceased person and therefore a garnishee notice must not be issued under section 89 in these circumstances.

Garnishee notices & bankruptcy

A garnishee notice cannot be issued once a debtor has become bankrupt because the debt is no longer a ‘debt due to the Commonwealth’ for the purposes of the Social Security Act 1991.

The Commonwealth can rely on a garnishee notice issued prior to bankruptcy, but only where the debt was due before the bankruptcy commenced.