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15 May 07 Directors liable to penalty for unremitted group tax - Paola

The New South Wales Court of Appeal (Santow and Campbell JJA, Handley AJA) have dismissed an appeal by 2 directors of a company from a decision of Patten AJ, who had held that the directors were liable to a penalty under s 222AOC ITAA 1936 in respect of the company's failure to remit tax deducted from the salary and wages of the company's employees. The directors' defence was that the company had entered into an agreement with the Commissioner under s 222ALA ITAA 1936, under which the company agreed to make fortnightly payments of its outstanding tax, including GST and interest and penalties.

Section 222ALA provided:

“The Commissioner may make with a person a written agreement under which the person is to pay specified amounts, on specified days, for the purpose of discharging one or more specified liabilities of the person, each of which is:
(a) a liability under a remittance provision; or
(b) a liability to pay an estimate.”

It was held by Patten AJ that the agreement was not made under s 222ALA because the amounts specified for payment on the days specified were intended to cover all the company’s liabilities to the Commissioner, and not just its liabilities under a remittance provision. The Court of Appeal agreed, stating:

"Section 222ALA(1) applies to a “written agreement” and the writing must specify the matters required. This agreement did not specify the total liability of the company under a remittance provision. Moreover it did not appropriate each payment to a particular liability or type of liability. It therefore could not be said of any specified amount payable on any specified day that that payment was “for the purpose of discharging one or more specified liabilities ... under a remittance provision”. Although the agreement as a whole was for the purpose of paying the company’s liabilities under a remittance provision the purpose required by the section is more specific."

The directors' appeal was dismissed: Paola v FCT [2007] NSWCA 108 (NSW Court of Appeal, Santow and Campbell JJA Handley AJA, 9 May 2007).

For a copy of the decision, go here

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