BEWARE: The Australian Taxation Office (“ATO”) has a wide power to pursue directors and other “entrusted persons” personally for unpaid company excise duty. The ATO’s power is so wide that even a wage earning – clock in clock out – employee could be deemed liable!!
Excise duty is a commodity based tax imposed by the ATO on alcohol, tobacco, fuel and petroleum products.
Section 60(1) of the Excise Act 1901 (“the Act”), is the section underpinning the ATO’s ability to issue a statutory demand on directors and other “entrusted persons” for unpaid excise duty.
The section reads as follows:
Where a person (including a licensed manufacturer) who has, or has been entrusted with, the possession, custody or control of excisable goods which are subject to the Commissioner of Taxation’s control:
- fails to keep those goods safely; or
- when so requested by a Collector, does not account for those goods to the satisfaction of a Collector;
the person shall, on demand in writing made by a Collector, pay to the Commonwealth an amount equal to the amount of the Excise duty which would have been payable on those goods if they had been entered for home consumption on the day on which the Collector made the demand.
The section does not impose a tax but instead, imposes on a person who has or has been entrusted with the possession of excisable goods, a liability to make a payment in the nature of compensation for the loss of excise duty.
In a nut shell, the section is aimed directly at the unauthorised relinquishment of possession of excisable goods principally where there is no payment of duty. Australian case law has confirmed this objective and has established that the meaning of the expression “to keep excisable goods safely”, is to impose an obligation upon a person in possession, custody or control of excisable goods to ensure that those goods do not find their way into home consumption without the payment of duty.
Who is such an entrusted person you ask?
Section 61(1) of the Act stipulates, all excisable goods are subject to the Commissioner of Taxation’s control until delivered for home consumption or for exportation to a place outside Australia, whichever occurs first. The commissioner then “entrusts” the control of the excisable goods to any person deemed responsible for remitting a company’s excise duty incurred with respect to those goods.
As many will be aware, the ATO has debt recovery avenues available to pursue company officers personally for unpaid company PAYG withholding and superannuation liability. Section 60(1) is not limited to company officers. Instead, the approach of the Commissioner to deeming those entrusted with control and in turn, liability for unpaid company excise duty, reaches a much wider range of people associated with a company’s business.
Parties that could be deemed an entrusted person and caught by the ATO’s net include:
- Company’s Director(s);
- Company Officer(s);
- Holding Company(ies);
- Chief Executive Officer(s); and
- General Manager(s).
The above listing is not exhaustive and, contingent on a person’s level of financial knowledge and their duties performed in the company’s business, section 60(1) has the potential to reach a general employee of a company. Ultimately, if a person has financial control of a company and is involved with the day to day management of the company’s business they can be deemed an entrusted person(s) pursuant to section 60(1).
If a company has failed to remit payment of the excise duty liability incurred, the entrusted party(ies) may be deemed to have “failed to keep the goods safely” and consequently, may be deemed liable to pay the company’s excise duty.
If you are associated with the management of a business that is liable to remit excise duty and has not, YOU can be made liable to pay the excise duty.
Shaw Gidley are experts in restructuring, turnaround and insolvency and provide free initial advice on these matters. Please contact our offices on (02) 4908 4444 or (02) 6580 0400.