Are directors liable for a company's TAX DEBT?

Corporate structures are created on the assumption of limited liability status. This means that the company is considered a separate legal entity.

So, most of the time, the liabilities of the company is limited to itself and does not extend to shareholders and directors.

Of course, if the directors have engaged in insolvent trading, then they would be liable for the debts of the company. We have had many cases of this in recent times such as HIH.

But, we are talking TAX and specifically TAX DEBT. The tax debt of a company would normally not extend to the directors. 

However, if a payment arrangement has been made with the ATO for the tax debt AND the company breaches the arrangement....

Then, the directors can be personally liable for the tax debt under s.222AOE "Directors Penalty Notice".

FINAL WORDS

The corporate structure has been traditionally held as a great tool for business. However, the privileges of directors have been increasingly eroded thru the years. 

At the same time, the liabilities and responsibilities of directorships have increased steadily. 

So, research the company before you assume the directorship...! It may just have a few hidden traps for the unwary..!

From the AusTax team. 

The #1 provider of Australian tax news on twitter.