Tax Law: 23 March 2019
Question: When can an individual be personally liable for a company's taxation liabilities?
Answer: If they are deemed liable by reason of being a director of that company at a particular time.
The director penalty provisions under the Taxation Administration Act 1953 are a powerful tool in the Australian Taxation Office's (ATO) arsenal for recovery of certain outstanding company tax debts.
Where you are a director of a company at the time it incurs certain tax debts, including PAYG withholding tax (actual or estimated) or a Superannuation Guarantee Charge, you may be personally liable for this tax. What this means is the ATO can then take steps to recover these debts from you personally. Even where you are appointed as a director of company after the debt was incurred you can still become liable once you have been a director for more than 30 days.
In order to avoid personal liability, there are steps you can take (provided they are taken within the time prescribed by the legislation), such as paying the outstanding debt, winding up the company or appointing an administrator to the company, within a certain period of time being any time on or before the 21st day after the ATO gives you a so-called Director Penalty Notice. Depending upon the circumstances, there may also be defences available to you once the ATO elects to pursue the debt, even before the matter is taken to Court.
If you do receive any letters from the ATO relating to Director Penalty liabilities you need to move fast. For all newly appointed directors it is wise to make a thorough inquiry of a company's tax position and quickly consider the best course of action if there are outstanding tax debts.
The best advice for any director is to ensure a company never incurs the tax debt in the first place or deals with any debt (and the ATO) in a timely fashion.