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When researching what happens when a SMSF member goes broke, I wondered if the ATO could ever get to your superannuation in the event you owed them money. This is what I found out.
The ATO is empowered to collect monies owed directly from third parties who owe/hold money to/for the debtor (section 260-5 in schedule 1 of the TAA). It seems that third parties include superannuation funds.
To collect monies from a third party the ATO issues what we know as a garnishee notice. The ATO’s policy on how it uses a garnishee notice is set out in guideline PS LA 2011/18. It says that a garnishee notice may be served on a super fund, but it will not be effective until the tax debtor’s benefits are payable under the rules of the fund (e.g. retirement or death). Generally, a notice served on a super fund will request payment as a lump sum unless the pension/annuity payable can guarantee repayment within a satisfactory period.
As the bankruptcy trustee for Denlay, I am aware of one court case regarding the ATO garnisheeing super funds (Denlay & Anor v FCT 2013 ATC 20-382). However, the case doesn’t really help because while the garnishee notices were quashed, it was on a point related to the case not related to the TAA or the ATO’s policy guideline.
There is a case on the ATO issuing garnishee notices on third parties for monies that are not presently due (Dinning v FCT 1999 42 ATR 299). The third party was an employer and the money was for future salary payments. The court upheld the garnishee notice in that case, so there is no reason to suspect that a garnishee notice on super monies due in the future won’t be valid.
How can you avoid super funds being garnished? Well:
In essence superannuation is not as sacred as what we are led to believe, because the ATO can garnishee super monies to pay outstanding taxes.
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Author: Jason Bettles, Partner Worrells Gold Coast & Ballina
Email: jason.bettles@worrells.net.au