Debt recovery action initiated by the Australian Taxation Office against small firms is having a “crippling” impact on many of them, according to the small business ombudsman.

The ATO has a range of debt recovery actions, which are not available to the average creditor. This includes garnishee notices, which allow the ATO to demand money from the taxpayer’s bank account, or another third party.

In one recent case, the ATO issued garnishee notices to the largest clients of a particular company. The notices required the clients to withhold and remit to the ATO 50 per cent of any progress claims payable to the company. It enabled the clients to terminate the contracts meaning that the company had no choice but to? collapse into liquidation, with the termination of 90 employees.

The ATO Commissioners power to issue a Garnishee Notice (under section 260-A of Schedule 1 (the Schedule) to the Taxation Administration Act 1953 (Cth) is an administrative discretion and there may be circumstances which may cause the Commissioner to review his decision.

A decision by the ATO can be challenged in the Administrative Appeals Tribunal (AAT), and the small business ombudsman Kate Carnell has called for the ATO to immediately cease debt recovery action against any small business with a dispute before the AAT.

Springdale Legal’s principal solicitor, Adam Hornsey, has vast experienced within the ATO, and now in private practice can provide guidance and solutions in cases such as those examined here.

As a postscript, many enquiries from debtors are relating to the ATO’s practice of referring debts to collection agencies. The ATO is clear that they don’t refer debts to collection agencies when they are being formally disputed. If you formally dispute your debt after it has been referred to an agency, the debt will be returned to the ATO for action.