Recent changes in the law now make Directors personally liable for any unpaid PAYG Withholding and Superannuation Guarantee (SG) that is more than 3 months outstanding. Effectively, the Australian Government has made a series of changes to strengthen laws surrounding Director Penalty Notices (DPN). The amendments seek to reduce the scope for company Directors to engage in fraudulent phoenix activities or escape liabilities and payments of employee entitlements by:
- Extending the scope of Directors’ penalties to include unpaid SG as well as unpaid PAYG withholding amounts.
- Preventing Directors from a DPN by placing a company into liquidation or voluntary administration when PAYG Withholding or SG remain unpaid and unreported.
- Making Directors personally liable for any unpaid PAYG Withholding and SG obligations of the company.
Background to the amendments
In 1993 the Director penalty regime was introduced to assist the Commissioner in recovering company liabilities including PAYG Withholding with the policy objective being:
- To ensure that company Directors pay withheld amounts or to promptly put the company into liquidation or voluntary administration, and;
- To discourage phoenix activity that is seen as a threat to employee entitlements and government revenue.
- A phoenix company is used to intentionally accumulate debts and then placed into voluntary administration or liquidation to avoid paying those debts. The business then ‘re-emerges’ as another corporate entity, controlled by the same person or group, free of debts.
The previous regime encouraged Directors to place the company into liquidation or voluntary administration to avoid personal liability for the company’s tax debt. It is this point that limited the effectiveness of the regime.
Effects of the amendments
The law changes now extend to include Superannuation Guarantee payment, and prevent a Director from avoiding personal liability for PAYG Withholding and SG that is unpaid and unreported for more than 3 months.
No longer can a Director dissolve all liability by placing a company into liquidation or voluntary administration. Where a company is liquidated or placed in voluntary administration, Directors remain “locked down” and are held personally liable for the outstanding tax debt.
Reducing your risks
In order to reduce the risk of being issued a DPN, we advise Directors to:
- Ensure any outstanding BAS’s are lodged by the due date,
- Pay all PAYG Withholding and SG or lodge a Superannuation Guarantee Charge statement with the ATO by the relevant due date.
Summary
As a Director, it is important that you are aware of the above legislative amendments and take appropriate steps to ensure all BAS’s are lodged and paid by the given deadline to avoid personal liability.
If you would like more information about Directors Penalty Notices, please contact us at ourteam@azuregroup.com.au or (02) 9238 1188.
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