The Government today released for public comment an exposure draft of the Personal Liability for Corporate Fault Reform Bill 2012 (Liability Reform Bill). This release is the third and final step in the Government's response to the Directors' Liability Reform Project, a Council of Australian Governments (COAG) initiative to harmonise the approach of all Australian jurisdictions to personal criminal liability for corporate fault. The COAG initiative included establishing a set of principles to apply across legislation when considering provisions which provide for personal liability for corporate fault.
The exposure draft legislation and accompanying explanatory document can be found at the Treasury website. Comments on the exposure draft legislation are due on 3 September 2012.
Two earlier exposure drafts of proposed amendments to non-tax legislation within the Treasury portfolio were released in January 2012 and June 2012 for public comment. For a summary of the amendments proposed in the two earlier exposure drafts (and the COAG principles for legislative review), please see our Alerts 'Draft bill first step in reforming personal liability for corporate fault' and 'Second step in reforming personal liability for corporate fault'. This third and final tranche relates to Commonwealth taxation legislation.
Amendments to director liability - third tranche
A legislative audit of taxation legislation against the COAG principles for legislative review has identified provisions imposing personal liability on directors set out in the Taxation Administration Act 1953 (Cth), the Income Tax Assessment Act 1936 (Cth) and the Superannuation Guarantee (Administration) Act 1992 (Cth).
The Liability Reform Bill proposes to repeal the following provisions:
- section 444-15 of Schedule 1 to the Taxation Administration Act 1953 (Cth)
- paragraph 252(1)(j) of the Income Tax Assessment Act 1936 (Cth), and
- subsection 57(7) of the Superannuation Guarantee (Administration) Act 1992 (Cth).
Each of these provisions provides that where any notice, process or proceeding may be given to, served on or taken against a company under a relevant tax law, the Commissioner may give to, serve on or take against a company director the same notice, process or proceeding. That is, the Commissioner may, if the Commissioner thinks fit, hold a director of a company personally liable for a liability of the company. In the explanatory document accompanying the Liability Reform Bill, the Government notes the decision of the Full Federal Court in Reynolds v Deputy Commissioner of Taxation (1984) 3 FCR 329, which found that liability of a company director under paragraph 252(1)(j) of the Income Tax Assessment Act 1936 (Cth) may only arise as a result of the director's own action and not absolutely whenever there is company liability. Given the similarity in wording between the provisions for which amendment is proposed under the Liability Reform Bill, the decision of the Full Federal Court may arguably apply to section 444-15 of Schedule 1 to the Taxation Administration Act 1953 (Cth) and subsection 57(7) of the Superannuation Guarantee (Administration) Act 1992 (Cth). Notwithstanding this judicial limitation on the liability of company directors for taxation offences, the Liability Reform Bill proposes to repeal these provisions.
The Liability Reform Bill proposes to repeal the above provisions in so far as they affect director liability, and include provisions granting the Commissioner power to serve a notice on a company by giving it to a director.
Note, the repeal of these particular tax provisions does not mean that directors cannot be personally liable for company tax. That is far from the position, and how the rules work in this regard can be seen from our recent Alerts 'Amendments to director penalty regime passed' and 'Liability for directors for certain company tax: proposed reform'. These Alerts set out the liability rules which are unaffected by reform, as well as the reforms which were enacted to extend those liabilities in some cases.
The legislative audit of taxation legislation further identified that section 8Y of the Taxation Administration Act 1953 (Cth) may potentially raise an issue when assessed against the COAG principles for legislative review. This provision deems a company director liable for certain taxation offences committed by their company, but provides for a defence where a company director can prove that they were not directly involved in the offence. The onus of proof is on the director. The Government has decided to not repeal or amend section 8Y as, in its view, it would be inappropriate to reverse the onus of proof in section 8Y, given that information regarding a director's involvement in an offence may be peculiarly within the knowledge of the director and may be difficult to establish in a prosecution. Further detail on the operation of section 8Y can be seen from our earlier Alert 'Liability for directors for certain company tax: proposed reform'.
Consultation on the Liability Reform Bill is open until 3 September 2012, which is a very short timeframe. The government has indicated that it intends to introduce the final legislation, incorporating the proposed amendments from all three exposure drafts tranches, by the end of 2012.