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).
