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Directors’ Liability to Remit Tax

Division 9 of Part VI of the ITAA imposes a duty on directors to cause their companies to remit tax deductions. If a company fails to remit deductions by the due date, the Commissioner for Taxation serves notice on the director, who then becomes liable to a penalty equal to the un-remitted amount. Under s 222 AOJ, a director may avoid liability if they prove that:

a)    S 222 AOJ (2)…because of illness or for some other good reason, the person did not take part in the management of the company at any time when:

    i)    The person was a director; and

    ii)    The directors were under the obligation to comply with subsection 222 AOB (1)

b)    S 222 AOJ (3) it is also a defence if it is proved that:

    i)    The person took all reasonable steps to ensure that the directors complied with subsection 222 AOB (1); or

    ii)    There were no such steps that the person could have taken

According to s 222 AOJ (4) reasonable meaning having regard to when, and for how long the person was a director and took part in the management of the company and all other relevant circumstances. Steps under s 222 AOJ (3) include:

  • Payment of the un-remitted amount

  • Enters an agreement with the Commissioner under s 222 ALA

  • It has an administrator appointed

  • It begins to be wound up s 222 AOC

The leading case on the application of s 222 AOJ as a defence is Fitzgerald v FC of T (1995) 13 ACLC 1547 (head note enclosed). Despite only holding the position of a director for 17 days, Mr. Fitzgerald was liable for the un-remitted deductions. Although he argued that he did not take part in the management of the company, French DCJ found that there was no evidence to suggest this. Her honour considered the argument that Mr. Fitzgerald became a director 2 months after a penalty notice was served on the company, but found “it is the responsibility of a new director at or before taking up his appointment to make inquiries of the relevant officers of the company as to whether there was any moneys owing by the company to the Commissioner.” Hence, it is not a defence merely to state that the director has no knowledge of the company’s financial position or the moneys owed.

Unlike Fitzgerald, Deputy Commissioner of Taxation v Farquharson 18 QLD Lawyer Reps 86 Judge Wall QC gave leave for the defendant to defend the plaintiff’s claim. The plaintiff made an application for summary judgment against the defendant company for un-remitted tax. The defendant raised the defence under s 222 AOJ (2) alleging that he was a nominee director only and did not take part in the management of the company. He only agreed to be a director in order to meet the requirements of the Corporations Law and there was an indemnity agreement made between himself and the other director of the company to this effect and swore an affidavit to this effect. Judge Wall QC found that there was sufficient evidence to suggest that he may not have taken part in the management of the company and hence the possibility of a defence was raised.

In relation to a defence under s 222 AOJ (3), Simpson and Others v Deputy Commissioner of Taxation (1996) 132 FLR 459, is authority for the position that the relevant time for considering whether the defence is proved is on or before the due date. This includes the period before the notice was given.

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