Directors still bear burden of proof in tax liability laws after new draft of bill

The Federal Government has announced the third iteration of its bill to make directors criminally liable for taxation offenses, but still refuses to make a change that would prevent directors from having to prove their innocence.

This comes just weeks after the government implemented separate laws that make directors personally liable for PAYG or superannuation amounts that remain unpaid and unreported three months after the due date for lodging a return.

As a result of both sets of laws, insolvency expert Cliff Sanderson of Dissolve says he’s now telling his clients to pay tax debts sooner, rather than later.

“In the past, directors have paid tax debts last. it’s a method of cheap finance. But now my advice is to reverse that and just get it out of the way, to pay it first straight away.”

Parliamentary secretary to the Treasurer, Bernie Ripoll MP, released the third tranche of the Personal Liability for Corporate Fault Reform Bill. It contains some changes, including the removal of personal criminal liability from directors “where it breaches principles of good corporate governance and criminal justice”.

“At the same time, we are ensuring there are still appropriate protections and remedies in place for stakeholders in circumstances where directors have encouraged or participated in an offence,” Mr Ripoll said.

But a key component of the bill remains – directors still have to prove their innocence.

The document contains a provision that “it would not be feasible to shift the burden and require the prosecution to prove a director’s involvement in the company’s offence.”

The Australian Institute of Company Directors has complained about the clause, although Sanderson says it makes sense depending on the size of the company involved.

“In a small company, the director will fully know when he or she is not complying with tax laws. Most commonly that will be because they didn’t do the quarterly BAS, or the income tax return.”

“So in that type of framework it makes sense because most of the time the director in a small company almost certainly did know what was going on, and perhaps even drove the activity.”

Sanderson says it makes more sense for a larger company to have these types of provisions, where a director may be one or two steps removed from the wrongdoing.

“I can see that making sense for a larger company in some circumstances.”

The government will be accepting submissions for the proposed law until September 3.