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Print PageProtect Yourself: A Director’s Personal Liability
Are you a company director? Did you know that you could be held personally liable if your company has a withholding tax debt? Do you know what a '222 Notice' is? Read on to learn about section 222AOE of the Income Tax Assessment Act, and how to protect yourself from liability.
What is a “222 Notice”?
A 222 Notice is a penalty notice issued by the Deputy Commissioner of Taxation to the director of a company with an outstanding withholding tax debt.
What does it mean?
A 222 Notice gives the director 14 days to resolve the company’s situation by taking one of the following four actions, or else be held personally liable for the debt.
1. Pay the Outstanding Debt
If the company is able to pay the debt before or shortly after the expiry of the notice, personal liability will not be an issue. However, it is important to note that if the company becomes insolvent within 6 months of paying the debt, the director may still face personal liability. Under the Corporations Act, a liquidator may set aside and recover the amount paid to the ATO as a preference payment.
2. Enter into a Written Payment Agreement with the ATO
A company which is financially unstable may choose to negotiate a written payment agreement with the ATO. In this case it is important to note that unless written confirmation of the payment schedule has been given by the ATO, the director will still remain personally liable for all outstanding debt not paid within the 14 day time frame. This is notwithstanding any verbal dialogue between the company and an ATO representative during the same period. The ATO’s usual policy is to require a substantial payment upfront with the balance to be paid within a short timeframe. Understandably, the ATO will be reluctant to defer payment if the company has any other form of tax in arrears.
3. Place the Company into Liquidation
A director is only absolved of personal liability if the company is placed in liquidation or administration before the expiry of the 222 Notice. However, both voluntary and court appointed liquidation typically take up to one month from the date of application. This option is therefore not available to most companies.
4. Place the Company into Administration
Voluntary administration, contrary to liquidation, takes effect immediately once an administrator accepts the appointment. A company with a core business worth preserving will usually use this option as it induces a moratorium on all creditors’ actions. This gives the director time to restructure the company, or to push forward a reasonable repayment proposal to all creditors, including the ATO.
Are you Protected?
Tax laws can affect your company, and you personally, in a myriad of ways. It’s important to know your responsibilities and rights by working with a trusted advisor. Previous incidences have revealed that some advisors do not inform directors of the potential for personal liability in relation to non-remittance of withholding tax!
If you would like to know more or if you would like to discuss any other tax matters, contact this office.
Disclaimer:
The information contained or otherwise implied within this e-mail has been provided in good faith and is deemed by the sender to be reliable and accurate. Bentleys MRI, however accepts no liability in respect of this e-mail and any person acting solely on the information contained within does so entirely at their own risk.Member of Moores Rowland International, an association of independent accounting firms throughout the world. Affiliated firms in all States of Australia. The firms practising as Bentleys MRI and Moores Rowland are independent. They are affiliated only and not in partnership.