Company Directors should be aware of a law called the Personal Liability for Corporate Fault Reform Bill 2012. Basically Company Directors become personally liable for outstanding superannuation guarantee charges and PAYG withholding tax if the company fails to make these payments within the stipulated time. Further it places the burden of proof on Company Directors to prove that they are innocent.
The Commissioner of Taxation must issue a Notice and wait until the end of twenty one days after issuing that Notice before commencing Proceedings. A Director can achieve remission of their personal liability by causing one of three things to happen before the Notice is issued or within twenty one days after the issue of the Notice:
a) The company pays the liability;
b) An administrator for the company is appointed; or
c) The company begins to be wound up.
This is only a brief summary of the law and full advice should always be obtained if the company is in difficulty in meeting its taxation liabilities.
The importance of a director’s duty in exercising care and due diligence was stressed by the judge in a case involving Centro; the shopping centre owner. It was ruled that the directors were in breach of the Corporations Act as a result of failing to take reasonable steps to ensure that the accounts were correct. The directors in question had approved financial accounts that had classified over $2 billion in short -term loans as long-term loans. The decision identifies the importance of directors being able to have a basic understanding of basic accounting and in not placing reliance on management and external advisors. To delegate such responsibility is fraught with danger.
The failure to recognize that a private company is a separate identity and that dealings between the company its shareholders and directors have tax implications is a misconception which causes tax payers a steady stream of problems. The fact that companies and individuals have difference tax rates creates tax complexity, allowing for deliberate or sometimes accidental tax planning. It makes tax sense for shareholders and directors to use company profits, say by way of loans or use of assets owned by the company, instead of the company paying taxable dividends to them. Care should be taken when there is any transfer of funds or assets between the company and the shareholders.