Emil Ford Lawyers

A Warning to Board Members of Schools and Not-for-Profits

In a recent decision of the Supreme Court, the director of a company that failed to remit more than $600,000 of withholding tax to the ATO was held to be personally liable for that amount. This case should remind board members of schools and not-for-profits that they too could be liable for penalties relating to breaches of the Taxation Administration Act 1953 if they fail to take all reasonable steps to ensure that their company complies with its taxation obligations.

Mr Tannous was the sole director of 1 Group Australia Pty Ltd, which, on multiple occasions, did not remit to the ATO tax in respect of its employees. Once the remittance dates passed, Mr Tannous, as the director of a non-complying company, became liable automatically to a penalty equal to the amount that the company did not remit. Since Mr Tannous’ company had not met its payment obligations, had not appointed an administrator and had not begun the process of winding up the company, he was in breach. Mr Tannous was then sent two Director Penalty Notices by the Deputy Commissioner of Taxation, which he did not respond to.

At the hearing, Mr Tannous acknowledged that the company had failed to remit the tax, but he tried to argue that he had not received the first Notice until after the date of compliance had passed. He also claimed that the Notices were ‘defective’ because they did not explain the main circumstances in which a penalty can be avoided. Mr Tannous failed on both grounds. The Court concluded that the Deputy Commissioner of Taxation did not actually have to physically provide the notice to Mr Tannous. It was sufficient that the Deputy Commissioner assured the Court that a stamped envelope with a Notice was placed in a post box with the correct address.

The main warning that schools and not-for-profits should take from this case is that, under many pieces of legislation, board members of companies and incorporated associations can be held personally liable for tax owed by their organisation. That includes remitting money to the ATO. If your school or not-for-profit is incorporated, the failure of a board member to comply with revenue legislation, work health and safety legislation or other duties (such as failing to act in the best interests of the organisation or engaging in dishonest/unconscionable conduct) could become a very expensive exercise for them personally. We encourage schools, not-for-profits and their board members to contact  if they want to know more about the duties they are expected to perform.

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