There has been an abundance of commentary recently warning directors of the debt recovery avenues available to the Australian Taxation Office (“ATO”) to pursue directors personally for unpaid company PAYG withholding and superannuation liability. It is perhaps not as well known that, at the same time, the New South Wales Office of State Revenue (“OSR”) has similar powers, some of which mirror those of the ATO; so BEWARE directors the OSR will employ these powers to recover any unpaid payroll tax from directors personally.
Collection of Payroll Tax under the Taxation Administration Act 1996 (“TAA”)
Directors and Former Directors
Similar to that of the Director Penalty Notice Regime under the Income Tax Assessment Act 1996, if a company fails to remit payment for payroll taxation as assessed by the OSR, the Chief Commissioner of State Revenue (“the Chief Commissioner”) may serve a compliance notice on a person who is a:
- current director of the company; and/or
- former director of a company who was a director at the time the company first became liable for the outstanding payroll tax.
The power of the Chief Commissioner to issue a compliance notice is derived from section 47B of the TAA. The compliance notice advises the recipient that if the company’s failure to pay the assessment amount is not rectified within twenty one (21) days, the recipient will be personally liable to pay the assessment amount.
The OSR will consider that the company’s failure to remit payment of any outstanding payroll tax rectified if:
- The assessment amount is paid; or
- The OSR makes a special arrangement with the company for the payment of the assessment; or
- The board of review waives or defers payment of some or all of the assessment; or
- An administrator is appointed over the Company under Part 5.3A of the Corporations Act 2001 (“Corporations Act”); or
- The Company begins to be wound up within the meaning of the Corporations Act.
If compliance is not rectified within the 21 day time frame, the director or former director on whom the compliance notice was served will be deemed jointly and severally liable with the company to pay the assessed amount.
Third Parties via Garnishee
Similar to tax garnishee notices issued by the ATO, the Chief Commissioner can require the following persons to remit payment of a company’s outstanding payroll tax liability:
- A person by whom any money is due or accruing or may become due to the company/debtor;
- A person who holds or may subsequently hold money for or on account of the company;
- A person who holds or may subsequently hold money on account of some other person for payment to the company;
- A person having authority from some other person to pay money to the company.
The power of the Chief Commissioner to issue such a notice is derived from section 46(1) of the TAA. The notice requires that the recipient remit monies to the value of the company’s unpaid payroll taxation liability to the OSR when the money becomes due to the company and or after any such period as specified by the notice.
Collection of Payroll Tax under the Payroll Tax Act 2007 (“PTA”)
While the powers afforded to the Chief Commissioner under the TAA somewhat emulate the ATO’s debt recovery powers, the PTA bestows the Chief Commissioner with a much wider power for the collection of unpaid payroll tax.
Section 81(1) of the PTA stipulates that if ANY member of a group fails to pay their payroll tax liability, EVERY member of the group may be deemed liable jointly and severally to pay that liability to the OSR.
The following groups can be targeted by the OSR pursuant to section 81(1) of the PTA:
- Groups of companies that are related bodies within the meaning of the Corporations Act;
- Groups arising from the use of common employees;
- Groups of commonly controlled businesses;
- Groups arising from interests in companies; and
- Smaller groups subsumed by larger groups.
The implications of the broad grouping provisions may see directors and or other group entities alike being deemed personally liable for the outstanding payroll tax debts of companies that are two arms-length from their control.
As directors do not need to have any direct connection with the debt laden company within the group to be caught by section 81(1) of the PTA, it is prudent that you never overlook a notice from the OSR even if you think it has been issued in error.
If you receive a notice from the OSR regarding unpaid payroll tax, do not ignore it!
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.