Director’s Penalty Notices
This legislation was passed by the Government in July 2012.
- In addition to liability for PAYG withholding amounts, directors are personally liable for their company’s unpaid superannuation guarantee charge.
- A new director is not liable to a director penalty for company debts that existed when they became a director until 30 days after they became a director.
- In addition to estimating unpaid PAYG withholding liabilities, the Commissioner can estimate unpaid superannuation guarantee charge.
- The Commissioner may also serve a copy of a director penalty notice on the director at his or her tax agent’s address.
- Where 3 months has lapsed after the due day, the director penalty is not remitted by placing the company into administration or beginning to wind it up.
- New directors are not subject to these restricted remission options until 3 months after they become a director of a company, rather than 3 months after a debt arose
- In addition to these defences, a director that becomes liable to a director penalty for not causing its company to comply with its superannuation obligations is not liable to a director penalty if the company treated the SGA Act 1992 as applying to a matter in a way that was reasonably arguable and the company took reasonable care in applying the SGA Act 1992 to the matter.
- Where a company has failed to pay PAYG withholding amounts to the Commissioner, the Commissioner has a discretion to reduce a director’s entitlement to PAYG withholding credits relating to withholding payments made by the Company.
- Company directors and their associates who are entitled to a credit attributable to a payment by a company that has failed to pay amounts withheld under PAYG withholding to the Commissioner, can be liable to pay PAYG withholding non-compliance tax.
Tips for Company Directors
If you are about to accept a position as company director:
- Ensure that, as part of your due diligence that you cover the company’s PAYG and superannuation guarantee obligations. A new director will become liable to a director penalty if, after 30 days of joining the company, the company still has not discharged its obligations.
- Companies should review their PAYG and superannuation compliance procedures to ensure there are no risks identified, such as incorrectly classifying employees as contractors or incorrectly calculating their superannuation obligations.
Director Penalty Notices Latest Developments
Earlier this year, the ATO issued a DPN subsequent to a company going into liquidation. Arguably this was contrary to:
- the explanatory memorandum for the law changes presented the parliament
- the stated policy objectives
- the intention of the Act
This involved a director who allegedly was instructed by the ATO, in or about July 2012, to report all outstanding PAYG withholdings for his company.
The director complied and determined a large PAYG debt was owing to the ATO since 2005. As a result of the debt, the director placed his company into liquidation in September 2012.
At the time he placed his company into liquidation, a Director Penalty Notice had not been issued.
Subsequently, on 29 January 2013, 5 months after his company had been placed into liquidation, the ATO issued a 11Lock Down” Director Penalty Notice covering all BAS lodgments outstanding more than 3 months past the due date.
While it is open for the director to seek redress through the administrative appeals mechanisms, it appears this director is personally liable for his company’s tax debt.
Implications for Other Directors?
As noted above, prior to this event, neither pre or post 29 June 2012, had we ever witnessed the ATO issuing a Director Penalty Notice once a company had been placed into liquidation.
It is clear that issuing DPN’S in these circumstances now signal a new and far more aggressive approach towards serious tax evasion by the ATO.
No doubt companies should always report and pay their tax obligations. However, it remains to be seen the manner which the ATO will use any discretion it may have in dealing with companies already in liquidation.
Questions include whether the ATO limit the use of DPN’s to companies in liquidation where there was an obvious failure to report a liability over many years or where there is a clear case of tax evasion or extend DPN’S to companies in liquidation that may have only 2 or 3 outstanding lodgments.
Also, will the ATO only issue DPN’S to directors whose companies were placed into liquidation subsequent to 29 June 2012, or will they commence pursuing directors of companies that were liquidated earlier than that?
Despite the unanswered questions, the advice remains the same — always lodge BAS returns on time!
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