The Taxation Administration Act 1996 (NSW) provides for the administration and enforcement of a number of taxation laws including payroll tax, gaming machine tax, duties, health insurance levies, land tax, and the parking space levy.
Director Penalty Regimes (DPRs) give government bodies the power to pierce the corporate veil and make a present or former company director personally liable for certain unpaid company debts.
Directors or former directors of companies that have exposure to New South Wales (NSW) state taxes must now familiarise themselves with recent amendments made to the law concerning exposure for personal liability.
EXISTING FEDERAL DPR
Division 269 of Schedule 1 of the Tax Administration Act 1953 (Cth) contains the provisions that can create a director liability for certain company debts.
For example, a director (or former director) can be liable to pay the Commissioner a penalty for the amount equal to the unpaid amount of the company’s PAYG Withholding and Superannuation Guarantee obligations.
There is a state tax equivalent for NSW but not in all States and territories. Recently, the State Revenue Legislation Amendment Act 2014 (NSW) solidified provisions within the Taxation Administration Act 1996 (NSW) associated with the personal liability of directors for corporate tax liabilities within NSW.
The recent enhancements to the NSW legislation include the entitlement of the Chief Commissioner of Taxation to serve a written Penalty Notice on a director (or former director) of a corporation to impose a specified time upon which the director must rectify a NSW tax debt. A tax default then arises where the corporation fails to pay tax or fails to lodge a return in accordance with a NSW taxation law.
It should be noted that liability could still arise if the Penalty Notice is given, but not received. The Penalty Notice will be sent to the registered ASIC address for the director (or former director). If this is not a current address, the Penalty Notice can expire within 2 weeks and personal liability will still arise.
PIERCING THE CORPORATE VEIL
If the director (or former director) fails to cause the company to rectify the unpaid NSW tax liability by the end of the specified time period, he/she becomes jointly and severally liable with the corporation to pay the unpaid tax. This liability is not limited to the original assessment amount, but includes interest and penalty tax payable in respect of that assessment amount.
If a penalty (given for tax default) is not paid or finalised by the due date stipulated on the Penalty Notice, the Office of State Revenue Debt Recovery Department of NSW (Department) will begin enforcement action by issuing a further enforcement order. If a director (or former director) then fails to pay or finalise an enforcement order by the due date, the Department will take further enforcement action against the director or former director. “Enforcement action” may include suspension of licence or registration, property seizure, or a charge over land.
DEFENCES TO LIABILITY
Directors (or former directors) may be afforded a defence to the recovery of the NSW corporate tax liability. The NSW legislation mirrors some aspects of the federal legislation by providing a defence where the director (or former director) establishes that:
- he/she took all reasonable steps that were possible in the circumstances to ensure that the corporation rectified the failure to pay the liability; and/or
- he/she was unable, because of illness or for some other similar good reason, to take steps to ensure that the corporation rectified the failure to pay the liability.
For now directors of companies which undertake business in NSW should be aware of the possibility of personal liability extending to them.