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Personal liability for company tax debts

31 October 2011   (0 Comments)
Posted by: SAIT Technical
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Personal liability for company tax debts

PWC Synopsis - RC Williams

A company or close corporation is a legal entity in its own right, and debts incurred by the entity are its responsibility. As a general rule, the directors and shareholders of a company and the members of a close corporation are not personally liable for the entity’s tax and other debts if the entity turns out to be unable to pay them.

Personal liability for the entity’s debts will be incurred only where there is a piercing of the corporate veil, either at common law, or under statute.The Tax Administration Bill contains several provisions in terms of which directors, shareholders and membersof companies and close corporations can incur personal liability for its tax debts.

Section 180 of the Tax Administration Act

The most far-reaching of these provisions is section 180 which reads as follows:A person is personally liable for any taxdebt of the taxpayer to the extent that the person’s negligence or fraud resulted in the failure to pay the tax debt if—

(a) the person controls or is regularly involved in the management of the overall financial affairs of a taxpayer;and

(b) a senior SARS official is satisfiedthat the person is or was negligent orfraudulent in respect of the payment of the tax debts of the taxpayer.

There several significant points about this provision:· personal liability is not limited toi ncome tax, but extends to "any tax debt”. The Act does not define the phrase "tax debt” but defines tax as including "a tax, duty levy, royalty,fee contribution, penalty interest and any other moneys imposed under a tax Act”. In essence, this embraces tax due under any tax legislation except under the Customs and Excise Act;· the trigger for such personal liability is "negligence or fraud”;


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