As we discussed in Tax Tip #45, directors are usually shielded from their company's debts and liabilities. This concept, known as the 'corporate veil', is what makes companies important structures for tax and asset protection strategies.
Unfortunately, the corporate veil can be pierced, and it is no secret that directors and former directors can be held personally liable for their Company's PAYG, GST and Superannuation Guarantee debts via Director Penalty Notices ('DPNs') issued by the Australian Taxation Office, provided they were a director at the time the obligation arose.
However, DPNs aren't the only risk posed to directors. Many people assume that a Will covers all the assets you own and control, however, this is not the case. It is important to seek the advice of an estate planning lawyer to help you determine what assets are included and not included in your Estate.
Question: Can Directors be held personally liable for payroll tax debts?
Answer: Yes, but only in New South Wales.
Tax Tip:
When a company in NSW fails to pay its debts, Revenue NSW has the power to issue a ‘Compliance Notice’ to the directors of that company under section 47B of the Taxation Administration Act 1996 (NSW) (the 'Act'). This includes people who are no longer directors, provided that they were a director at the time the tax liability arose.
These Compliance Notices, while less well-known, have a similar function and purpose to the Australian Taxation Office’s DPNs, as they are also designed to make directors liable for their companies’ unpaid debts. However, there is one key difference. A Compliance Notice issued under the Act can be issued to a director (including a former director) for any assessed corporate tax liabilities, including payroll tax debts.
Once a Compliance Notice is issued, the recipient has twenty-one days from the date they received the notice to rectify the deficiency. This can be done in a multitude of ways, including by:
ensuring that the company pays the debt;
making a special arrangement with the Chief Commissioner regarding the debt, usually in the form of a payment plan;
having the Board of Review waive or defer payment of the debt (either in part or in full);
having the company enters into voluntary administration in accordance with Part 5.3A of the Corporations Act (Cth); or
beginning the winding up of the company.
We highly recommend any recipients of a Compliance Notice act promptly to ensure the debt is rectified within the twenty-one-day notice period. If no action is taken (or if the actions taken are insufficient), then the directors who were served with the Compliance Notice will become jointly and severally liable with the company for the corporate tax liability, and Revenue NSW will be able to recover the debt from the directors as individuals.
While Queensland, Victorian and South Australian entities do not have to be worried about Compliance Notices, their respective jurisdiction's revenue agencies has the power to require third parties to remit funds held in favour of the taxpayer in payment of the debt (garnishee order).
If you or one of your clients has received a Compliance Notice or are subject to a garnishee notice, please contact our office urgently so that we can assist you.
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