Directors can be held personally liable for payroll tax.
Continuing the theme from March's article “DPNs – know your SGC obligations” which clarified the position of ATO Director Penalty Notices (DPN) and superannuation, it seemed prudent to visit another compliance notice—the Office of State Revenue (OSR) Compliance Notice. This less common notice can make a director personally liable for a company’s NSW payroll tax debts.
Section 47B of the Taxation Administration Act 1996 (NSW) (TAA) provides the Chief Commissioner and in turn the Office of State Revenue the ability to issue a 'Compliance Notice' (in a similar form to the ATO's DPN) to the following:
- A person who is a director of a corporation.
- A person who was a director of the corporation at the time the corporation became liable to pay the tax.
The key points relating to a “compliance notice” are:
- it can be issued to a director or former director of a company advising that they will be personally liable for payroll tax debt if the liability is not rectified before the date specified in the notice (the “compliance period”).
- the compliance period is 21 days from the notice's date
- the liability is rectified (during the 21-day compliance period) if:
- the debt is paid
- the Chief Commissioner agrees to a special arrangement
- the board of review waives or defers payment (in part, or full)
- the company enters into voluntary administration with a view of executing a Deed of Company Arrangement
- the company enters into liquidation.
If compliance is unrectified at the 21-day compliance notice's expiry, its recipient/s is jointly and severally liable to pay the payroll tax liability.
The director is then personally issued a notice of assessment of the liability.
This leads us to compare collection mechanisms available to the NSW Office of State Revenue with the other states. Outside of New South Wales, this action appears unavailable to the other state authorities, but each state has powers to garnish amounts payable to the taxpayer by a third party:
- Qld – Section 50 of the TTA 2001
- Vic – Section 47 of the TAA 1997
- SA – Section 43 of the TAA 1996
- NSW – Section 46 of the TAA 1996
Effectively, the legislation's “garnishee” section is mirrored in each state (in the sections referenced above) and provides that the Commissioner can by written notice require third parties other than the taxpayer to remit funds held for the taxpayer in payment of the debt.
The third parties listed in each of the abovementioned sections are:
“(a) a person by whom any money is due or accruing or may become due to the taxpayer,
(b) a person who holds or may subsequently hold money for or on account of the taxpayer,
(c) a person who holds or may subsequently hold money on account of some other person for payment to the taxpayer,
(d) a person having authority from some other person to pay money to the taxpayer.”
The key message...if you are in NSW—beware the unknown 'DPN'. For everyone else, if you have outstanding payroll tax liabilities: you are better off than your NSW counterparts but a garnishee is still a risk.
The only other issue to consider is grouping…which we will discuss in a future edition of Worrells - On The Pulse.