ATO Garnisheed Your Customers? Funding Payroll While Receivables Are Diverted

Key takeaways

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  When the Australian Taxation Office (ATO) sends a garnishee notice to one of your customers, that customer must pay the ATO the amount the notice sets, instead of paying your business.
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  Asking the customer to pay your business instead does not work. Under the ATO's rules, a customer that pays the ATO as the notice requires is treated as authorised by your business to do so.
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  A garnishee notice on your customer can last until your ATO debt is paid in full, unless the ATO varies or withdraws it, or the notice sets an earlier end date.
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  While your customers pay the ATO, your business still owes wages on payday, the tax withheld from those wages, and super, which from 1 July 2026 must reach each employee's fund within 7 business days of payday, with some exceptions.
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  Paying your ATO debt in full ends the garnishee notices, and your customers then pay your invoices to your business again.
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  A private loan from Secured Lending, from $250,000 and secured by property, gives your business the funds to pay the ATO in full, and we can settle within 24 hours.

If one of your customers has told you they received a garnishee notice from the Australian Taxation Office, they must now pay the ATO the amount the notice sets, instead of paying your business. Those payments reduce your ATO debt, but they no longer reach your bank account, and your wages, withholding and super still fall due on their usual dates. Once the ATO debt is paid in full, no obligation under the notice continues, and your customers pay your business again.

We would be glad to help you get there quickly. If your business or a director owns property, a short-term private loan backed by that property gives your business the funds to pay the ATO in full, so the notices end and your customers pay your business again. A private loan is a good fit here because a payroll date leaves little time: we lend our own funds, in most cases we decide within hours, and we can settle within 24 hours. We can still lend after a garnishee notice has been issued, and loans start from $250,000, with larger loans assessed case by case.

What your customers have been told to do

The ATO's page on the garnishee notice lists businesses or individuals who owe you money among the people it may issue one to, and gives trade debtors as the example. The notice requires the customer to pay the ATO instead of you, and the payments go towards reducing your tax debt.

Your business is served a copy of each notice. It tells you which customer received it, how much they must pay the ATO, and how often. On the customer's position, the ATO's page says: "The recipient is legally required to follow the notice."

Chasing the customer to pay you instead does not work. Under the ATO's Law Administration Practice Statement 2011/18, a third party that pays the ATO as a notice requires is taken to have been authorised by the tax debtor, and is indemnified for the money it pays. How each payment affects the amount the customer owes on your invoices is a question for your accountant.

The same practice statement explains how long the obligation lasts. It continues until the customer has paid the ATO the total debt, or until the ATO tells the customer that the notice is withdrawn. Some notices state an earlier end, for example 3 months after the notice was issued, so read the end date on your copy. Once the debt in the notice is paid, no obligation continues.

Payroll still falls due while customers pay the ATO

The cash your customers were going to pay you was often the cash that funded payroll. With it going to the ATO, the following still fall due on their usual dates:

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  Your employees' wages, on payday.
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  The tax your business withholds from those wages, which it still owes to the ATO.
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  Super for each payday. Under Payday Super, from 1 July 2026 the contributions must be received by each employee's fund within 7 business days after payday, with some exceptions, such as for new employees.

If super does not reach the fund in time, the super guarantee charge applies. Under Payday Super, the ATO assesses it, and it includes interest that compounds daily at the general interest charge rate. Our article on the Payday Super 7-day deadline covers that charge in more detail. Our page on short term loans to pay your staff on payday covers how we fund wages and super when a customer payment is late.

Unpaid withholding and super guarantee charge are also amounts a director can become personally liable for under the director penalty regime. If a director penalty notice has already arrived, our page on an urgent loan after a director penalty notice covers that 21-day timetable. A garnishee on your customers can therefore turn one ATO debt into two: the original balance, and the new withholding and super the business could not pay.

One loan that pays the ATO in full

The quickest way to end every notice at once is to pay the debt the notices refer to. Your business is the borrower. At settlement the loan funds are paid to your business, which then pays the ATO in full. Once the ATO is paid, your customers have nothing left to pay it under the notices, and their next payments go to your business again, where they can fund payroll.

We lend against property, not against your invoices or your customers' payments. The receivables are what the ATO is collecting, so a loan that depended on them would not help. Ours is secured by a first or second mortgage over residential, commercial or industrial property, which can be property your business owns, a director's home or investment property, or property already held in an existing company or trust.

Our tax debt loans cover the full ATO balance, including income tax, activity statement debts and super guarantee charge in one loan. When you apply, tell us the date and amount of your next payroll as well as the ATO balance, so we can talk through the timing with you.

We are a lender, and we do not give tax, employment or insolvency advice. How a notice applies to each invoice, your payroll obligations and any director penalty defences are questions for your accountant or solicitor. Whether the company can pay its debts as they fall due is a question for your accountant or an insolvency practitioner.

Ending the notices and telling your customers

Once your business has paid the ATO in full, ask the ATO, or ask your accountant to ask, for written confirmation that the debt is paid and that the notices are withdrawn. The ATO tells each customer when it withdraws a notice, and a copy of the confirmation from your business lets the customer update its own records and pay your next invoices to your business.

The ATO does not publish a set time for withdrawing a notice, so tell each customer yourself as soon as the ATO is paid.

Negotiating with the ATO, or paying in full

The ATO's page says you may be able to negotiate to withdraw or vary a garnishee notice if you make suitable alternative payment arrangements, and the practice statement says the ATO will consider any reasonable request on that basis. That arrangement is usually a payment plan, and under the ATO's payment plan rules a debt on a plan keeps accruing the general interest charge, which compounds daily. The ATO's annual rate for October to December 2026 is 11.51%, and the charge incurred on or after 1 July 2025 cannot be claimed as a tax deduction.

Paying the debt in full ends the notices and leaves no plan to keep up. If you are already talking to the ATO, a loan that pays the balance in full means no payment plan needs to be agreed, and your business can then focus on payroll and its customers.

Frequently asked questions

Can my customer keep paying us instead of the ATO?

No. The ATO's page says the recipient is legally required to follow the notice, so the customer must pay the ATO the amounts it sets until the debt is paid or the notice is varied or withdrawn.

Does what my customer pays the ATO reduce what they owe us?

The ATO's practice statement says a third party that pays under a notice is taken to have been authorised by the tax debtor and is indemnified for the money it pays. How that applies to each invoice is a question for your accountant.

Do we still have to pay withholding and super while our customers pay the ATO?

Yes. Wages, the tax withheld from them and super for each payday all still fall due, and unpaid withholding and super guarantee charge become further ATO debts.

Can my business borrow against property to pay the ATO while our customers' payments are going to it?

Yes. The loan is secured by a first or second mortgage over residential, commercial or industrial property, and it does not depend on your customers paying your business. The loan funds are paid to your business, which pays the ATO in full.

How long will the notices last?

A notice can continue until the ATO debt is paid in full, unless the ATO varies or withdraws it or the notice sets an earlier end date. Paying the ATO in full ends it.

How Secured Lending Can Help

We would be glad to help your business pay the ATO in full and get your customers paying you again. Our loan gives your business the funds to clear the ATO balance, so the garnishee notices end, secured by a first or second mortgage over property your business or a director already owns. Your business then repays us through a defined exit, such as a bank refinance or the sale of a property.

A private loan suits this problem because payroll dates do not wait. We lend our own funds and our in-house team values the property, so nothing waits on an outside valuer or another funder. In most cases we decide within hours, we issue a letter of offer as soon as terms are agreed, and we can settle within 24 hours.

If you would like us to look at your situation, it helps to have these to hand:

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  Your copies of the garnishee notices, or the emails from your customers.
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  The ATO statement of account showing the balance.
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  The date and amount of your next payroll.
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  The property that could back the loan, its estimated value and any existing loan on it.
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  How your business plans to repay the loan, and roughly when.

You are welcome to call us on 1300 795 175 with your payroll date and the ATO balance, and we can tell you on that call what we need to decide. You can also send the details through and we will come back to you.

Gino Tabila

Associate Director

Mark Hutchins

Managing Director