Directors’ liabilities for PAYG tax obligations

As a general rule, directors of companies are not liable for a tax debt assessed on a company. However, under the Corporations Act, a director may be liable for the debt accrued while the company is insolvent, or a debt that causes the company to become insolvent.

Australian taxation law places a clear responsibility on company directors to ensure they remit pay-as-you-go (PAYG) tax instalments. The Tax legislation is also clear about the penalties it places on directors when the company has failed to make and remit these instalments to the Australian Taxation Office (ATO).

If a payment arrangement with the ATO has not been entered, an administrator appointed to the company or the company wound up due to the directors failing to remit PAYG, then the directors of a company may be held liable for the totality of the unpaid PAYG.

A director may also be penalised as a consequence of the company committing other tax offences. A director may be subject to additional criminal penalties, if for example, they are a party to some scheme to defraud the revenue of the company, even if there is no personal benefit attained from the scheme.

Apart from their responsibilities to a company, directors should be aware that there are instances where they might be held personally liable for a company’s federal or state tax liabilities. It is unlikely that they can always rely on the general corporation law defence.

For further information regarding directors’ liabilities or tax prosecution, please contact our Business & Commercial Team.