Consequences for Directors Shirking Responsibilities

Consequences for Directors Shirking Responsibilities

Benjamin Franklin said, “In this world nothing can be said to be certain, except death and taxes”.

It seems that tax reform is on the agenda for government at both State and Federal level. It is certainly something that is never far from the lips of people in business, whether big or small. It is trite to say that companies are often ‘tax collectors’, especially with respect to GST, PAYG and superannuation. What some Directors may not be acutely aware of though, is the significant personal liability that can attach to a failure to remit these collected monies to the Australian Taxation Office (ATO).

Company directors are legally responsible for ensuring that their company meets its obligations under the Income Tax Assessment Act 1997 (ITAA) and Superannuation Guarantee (Administration) Act 1992 (SGA Act). These obligations were recently the subject of discussion in the matter of Deputy Commissioner of Taxation versus Birt [2015] QDC 179. In that case the Plaintiff (the Commissioner for Taxation) sought to recover from the Mr Birt (the Defendant) certain ‘director penalties’ relating to non-remitted PAYG collected by the company when Mr Birt was a director.

Directors who do not remit amounts collected under the SGA Act or the ITAA may become personally liable for those debts. The ATO does this by issuing ‘Director Penalty Notices’ equal to the value of the non-remitted tax liabilities. A Director will become liable to a penalty at the ‘end of the day the company is due to meet its obligations’, and at this time the penalty is automatically generated. Previously, and as discussed in the decision referred to above, the ATO would have to generate a ‘Director Penalty Notice’ and issue the same. That is no longer required, although the Commissioner does have to wait 21 days before commencing proceedings to recover the non-remitted tax. There is a specific procedure that must be followed by the Commissioner in recovering ‘Director Penalties’, and that is set out in section 269-20(2) of the Taxation Administration Act 1953.

The Court takes the view that these laws are ‘…appropriate, because the evils of taxpayers deducting taxation payments from employee’s wages and not passing them to authorities are considerable and perhaps widespread. The evils are not limited to the tax avoided: they extend to the use made of the money, namely either theft or use as working capital, thereby permitting companies to trade which in truth are not capable of continuing to trade lawfully… an ‘early sign of problems in the company is its living on the false reserves of non-remitted’ deductions from employee’s wages…’ per Heydon J, Deputy Commissioner of Taxation v Saunig (2002) 55 NSWLR 722 (at 29).

Other Articles

Club Rules – Both sides need to play fairly

Social and sporting clubs are an important part of many Australian communities. To ban a person from a Club can have ramifications not only for the individual concerned, but also for the Club itself as the recent decision of Gould v Isis Club Incorporated [2015] QSC 253 demonstrates.

Read more

Do you really want to sue someone?

Those that have been involved in the process of suing another party will tell you it is an unpleasant experience, even if you win your case. Some question if there is a winner in litigation, other than the lawyers.

Read more

Wills - Legal advice is Paramount

Wills are an integral part of estate planning, yet many Australians do not have a Will. Wills, generally speaking, are a relatively inexpensive way of making sure your assets pass to those you would like to receive those gifts.

Read more

Who owns copyright in advertisements that you pay for?

Copyright laws in Australia protect a range of ‘works’ such as literary, dramatic, artistic and musical works. However, a problem arises when you pay an advertising agency to create an advertisement for your business.

Read more

Speak to one of our experts

  (07) 5390 1400

Or fill out the form below to request a callback...

* required