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Directors' Liabilities - Each can be liable for totality of unpaid PAYG tax |
The tax ignorance of many directors is surprising, given that tax might amount to 30 per cent of a company's before-tax profits and the penalties for directors making a tax mistake can be very large. |
As a general rule, a director is not liable for a tax debt assessed on a company, although under the Corporations Act directors might be liable for one assessed on a company while it is insolvent, or for one which causes it to become insolvent. |
On the other hand, tax law is quite unequivocal about the penalties it places on directors when a company has failed to make and remit pay-as-you-go (PAYG) tax instalments. |
If PAYG is unpaid and the directors fail to cause the company to enter into a payment arrangement with the tax office, or an administrator to be appointed, or the company to be wound up, then the directors might each be liable for the totality of the unpaid PAYG. |
Also, a director might be penalised as a consequence of a company committing a tax offence - that is, apart from any penalty to which they might be personally liable, for example as a result of making a false statement. They may also be liable to criminal penalty if, for example, they are party to some scheme to defraud the revenue, even though they might not personally benefit. |
Apart from their responsibilities to a company, directors should realise that there are instances where they might be personally liable for a company's federal or state tax mistakes. It is unlikely that they can always rely on the Corporation Law's defence that the company's responsibilities for its tax liabilities were properly delegated to management. |
