Increased PAYG and Superannuation Liabilities for Company Directors

December 5, 2012

In June 2012, the Tax Laws Amendment (2012 Measures No.2) Act 2012 (Cth) came into effect, expanding the Director Penalty Notice (‘DPN’) provisions in the Taxation Administration Act 1953 (Cth). These changes have significant implications for a director’s personal liability for a company’s unpaid PAYG and Superannuation Guarantee Charge (‘SGC’). Recent signals indicate that the Australian Taxation Office (‘ATO’) may be preparing to employ its new powers much more aggressively in the near future.

Under the previous legislative scheme, if a company had failed to meet its outstanding PAYG withholding liabilities, the ATO could issue a DPN compelling the director to either pay the outstanding debt in full or place the company into external administration. If the director failed to take either of these courses of action within 21 days of being issued with the DPN, the director could then be sued personally for the company’s PAYG debt.

The new laws seek to reduce the scope and incentive for directors to engage in company ‘phoenix’ activities by further expanding the personal liability of directors. The main changes are as follows:

• Liability in relation to the DPN regime now extends to include not only PAYG withholding debt but also includes outstanding employee SGC debts;
• Second, a director cannot avoid personal liability by placing the company into external administration if the company’s PAYG or SGC debt remains unreported and unpaid for more than three months after its due date; and
• Third, in some instances where there is an outstanding PAYG liability, the ATO now has the power to withhold personal tax refunds owing to directors and owing to associates of the director. Associates of a director are defined broadly.
Company directors should take steps to understand how these amendments impact their particular circumstances. The new provisions affecting outstanding PAYG liability now apply retrospectively and the usual time limit for legal actions by the ATO do not apply, so present or potential liability could be significant.

With the SGC lodgment date of 28 November 2012 (for the first quarter of the financial year) now passed and the ATO having recently completed a national series of information sessions to professionals and practitioners in the field, it is expected that the ATO will begin enforcing these PAYG and SGC obligations personally against directors more enthusiastically, having publicly given a warning.

Directors can reduce their personal liability risk by ensuring that Business Activity Statements are lodged by the due date, meeting all PAYG withholding and SGC obligations when they arise, and, if the company cannot meet its PAYG or SGC obligations, promptly placing the company into external administration or liquidation.

Directors should also consider external administration options to avoid any potential personal liability that may arise from an insolvent trading claim being made against them by a liquidator, if the company ultimately fails.

If your company is struggling to meet its PAYG or Superannuation obligations, we advise that you urgently seek professional assistance and advice. Contact Grant Hutchinson, Con Nottas or Bernie Curtin on 03 9870 9870 for further information.

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