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Australian Lawyers and Consultants

Tax Debts Danger: Directors can Remain Personally Liable

April 2003

One must be careful, and informed, when entering into settlement negotiations with the Australian Taxation Office. Although you could think that all tax debts are fully extinguished once a company is either wound-up or settles a particular debt with the ATO, some tax debts may live on to haunt the directors personally.

One such example is under section 222AOC of the Income Tax Assessment Act 1936, by which the directors of a company are personally liable to pay, by way of penalty, an amount equal to the unpaid amount of the company’s liabilities in relation to the withholding provisions (under Division 12 in Schedule 1 of the Taxation Administration Act 1953) including PAYG, and including: income tax on payments for work and services, retirement payments, eligible termination payments and annuities, benefit and compensation payments, or payments where the TFN or ABN was not quoted. Also, Section 57 of the Taxation Administration Act gives the Tax Commissioner a discretion to impose personal liability on a director for a company’s liability to pay GST or other indirect taxes.

Negotiating a debt recovery dispute with the ATO requires an understanding of the potential legal exposures that might fall upon third parties even if the ATO accepts a compromise settlement on all the tax debts of the taxpayer company.

For further information, contact Joe Lederman at BALDWINS, Australian Lawyers & Consultants.

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