On 9 May 2007 the NSW Court of Appeal dismissed an appeal made the directors of a company that had failed to remit PAYG deductions.
The Court of Appeal upheld a decision of the NSW Supreme Court when it found that the directors had not relieved themselves of personal liability for the penalty for not remitting the tax under section 222AOC.
Directors may relieve themselves of personal liability by taking one of four actions set out in section 222AOB(1). One of these is entering into a repayment agreement with the ATO under section 222ALA.
The directors argued that they had entered into a section 222ALA agreement and this complied with section 222AOB(1). The Court and the Court of Appeal held that the agreement entered into with the ATO did not comply with section 222ALA, and therefore did not comply with section 222AOB(1). The court found:
- The payments in the agreement were not for the purpose of discharging specific liabilities under the remittance provisions. The agreement included the payments of other taxation liabilities of the company that fell outside those covered by section 222ALA.
- The agreement did not specify which payments were to pay which taxation liabilities.
The Act states that a 222ALA agreement must be one to “pay specified amounts, on specified days, for the purpose of discharging one or more specified liabilities of the person, each of which is
(a) a liability under a remittance provision; or
(b) a liability to pay an estimate”.
The directors appear to have made two mistakes:
1. wanting to pay other tax liabilities that were not under a remittance provision (This is the first time that we have heard of wanting to pay all of your tax debts being held against you); and more importantly
2. not drawing the document in sufficient detail to specify certain payments being used to pay specific taxation liabilities.
This should serve as a warning to directors contemplating entering into 222ALA agreements to ensure that the provision is adhered to completely and strictly, or the protection sought may be lost.