Traps in demand compliance timings
Unfortunately there are different methods applied for calculating when time runs from for:
- section 459E statutory demands; and,
- Commissioner of Taxation (“CT”) Director Penalty Notices to pay unremitted PAYG
Statutory Demands
Statutory Demands provide for a 21 day period after service within which an alleged debtor must:
- pay secure or compound the debt; or
- file and serve a court application to set aside the demand accompanied by an affidavit of supporting facts.
If the debtor fails to achieve either alternative within this strict time, the company is automatically deemed to be insolvent after the 21 days, permitting the creditor to commence a court process for the company’s winding up. There are only limited rights to challenge the alleged debt at the winding up hearing.
A posted demand is deemed to be received when a letter would ordinarily be received by post (this is of course can be rebutted by proof of the actual service date). The 21 days for the debtor to act in response to the demand cannot be extended.
This regime at least fairly recognizes the need for actual receipt of the demand before it can be dealt with. The 21 day period is often a tight timeframe to deal with the demand in our experience.
Section 222AOE Penalty Notices
These penalty notices are more onerous in their timing for compliance. The Income Tax Assessment Act makes a person who was a director of a company either on or after the due deduction date for PAYG payments, personally liable to the CT for the amount of any unremitted PAYG payments. The penalty equivalent to the unremitted sum can be avoided, only if within 14 days after a section 222AOE notice is sent to a director giving warning about the penalty, the director either causes the debt to be paid, causes a formal tax compromise agreement to be in force with the CT, winds up the company or has an administrator appointed to the company. There are some other limited defences.
An Appeal court has decided that the 14 days for compliance with this notice runs from when the notice is posted, not when it is in fact or might normally have been received in the post. That means if the notice is mailed and not personally served, the director will have less than 14 days to comply from its actual receipt, given the normal mail delays. The Australian Taxation Office has publicised that it will follow this time period strictly.
Both the above notices can lead to dramatic consequences if their timings are not complied with. Act swiftly when seeking advice to deal with them.
For further information please contact James Hamilton Direct line: (61 2) 9018 6403
Email: jhamilton@rbhm.com.au
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