Highlights

  • The Full Federal Court dismissed Li Zhang's appeal with costs, finding no arguable case of misconduct by the Commissioner.
  • A garnishee notice required a bank to pay a $391,735.78 term deposit to the Commissioner of Taxation.
  • Treasury is consulting until 27 November 2026 on letting the ATO garnishee a presumed share of joint accounts.
  • The Tax Ombudsman received 2,376 complaints in six months to September 2026, with relief from penalties or interest in 5%.

A tax debt of $2,513,693.24. An assessment for the 2003 income year, amended in 2016. A bank term deposit found in early 2024 and emptied by a single ATO notice. The Full Federal Court has now dismissed the taxpayer's appeal, and the ruling arrives while complaints about ATO debt collection climb and Treasury weighs whether the Commissioner should reach into jointly held accounts. It is a sharp reminder of how long the ATO's collection arm can be.

What the court decided

In Zhang v Commissioner of Taxation [2026] FCAFC 137, Justices Derrington, Feutrill and Vandongen dismissed Li Zhang's appeal with costs. The court found there was "no arguable case of misconduct" by the Commissioner in issuing the garnishee notice.

It does show that collection can reach money long after a debt is raised: the term deposit was located roughly eight years after the debt was recorded in 2016.

How the debt arose and was collected

In 2016 the ATO issued an amended assessment for the 2003 income year, lifting taxable income from $19,104 to $2,558,033, an increase of $2,538,929. The tax assessed was $1,189,655.51, and by 14 July 2016 the total debt stood at $2,513,693.24. The reporting does not explain the gap between those two figures or the basis for the amendment.

Amendments 13 years after the income year are unusual. Standard periods are generally two or four years, but the law sets no time limit where the Commissioner is of the opinion there has been fraud or evasion.

In early 2024 the ATO found an HSBC term deposit in Zhang's name holding $391,735.78, and under the garnishee notice the bank paid that amount to the Commissioner. A notice under section 260-5 of Schedule 1 to the Taxation Administration Act 1953 requires a third party holding or owing money to a tax debtor to pay it to the ATO. The taxpayer's agreement is not needed, and the third party is protected for complying.

A worked example: what the deposit covered

Hypothetical example: on the reported figures, $391,735.78 covers about 15.6% of the $2,513,693.24 debt recorded at 14 July 2016. That would leave about $2,121,957.46 on the 2016 number alone.

The real balance could look quite different. The general interest charge (GIC) generally keeps accruing on unpaid debts, compounding daily, and the rate cited in recent reporting was 11.51% a year. Payments since 2016 would reduce the balance, and no current figure has been given.

Joint accounts could be next

Today the garnishee power is generally limited to money held for, or owed to, the debtor. Treasury's consultation paper, Tackling fraud and financial abuse, released on 14 October, proposes two options. They are proposals, not law.

The first would let the Commissioner garnishee a debtor's presumed share of a joint asset, with equal shares assumed, and the ATO would have to make reasonable attempts to notify the other owners, who could object. On a $90,000 account held by three people, the presumed share would be $30,000. The second option would let the ATO freeze a set amount in a joint account before notifying any holder, without first applying to a court.

Consultation closes on 27 November 2026.

The wider debt crackdown

The Tax Ombudsman received 2,376 complaints in the six months to September 2026, up 74%, and penalties or interest were reduced in only 5% of cases, down from 17%. "The ATO has really significantly ramped up its activity on debt collection," Ruth Owen said. Commissioner Rob Heferen said in September: "Where debt is collectable, we will continue to take firmer actions."

A pending dispute does not automatically stop collection. Options short of litigation include a payment arrangement, a remission request or a hardship claim.