Expansion of Director Liability Provisions (PAYG & SGC) Now Law

Changes foreshadowed in our June 2012 Newsletter expanding the Director Penalty provisions contained within the Taxation Administration Act, 1953 (“TAA53”) became law (on 30 June 2012).

The new legislation has serious consequences for directors of companies. Directors are now exposed to personal liability for both PAYG withholding amounts and Superannuation Guarantee Charge (“SGC”) amounts.

A summary of the key aspects of the new legislation is set out below:

Superannuation

• The Director Penalty provisions of the TAA53 now include liability for SGC amounts. Previously only PAYG tax withheld was caught;

• The liability to SGC is not retrospective, however, will apply to SGC liability from the quarter ended 30 June 2012 (ie. if not paid by 28 July 2012);

• The ATO can now estimate unpaid SGC and use the estimate to apply the Director Penalty provisions;

PAYG – Retrospective

• For PAYG withholding, the new law is RETROSPECTIVE where a company’s activity statements have not been lodged within three (3) months of their due date as at 30 June 2012. (eg. for the March 2012 quarterly activity return, the due date would normally be 30 April 2012. The three (3) month period would thus expire on 30 July 2012).

• Where PAYG withholding and SGC amounts remain unreported and unpaid three (3) months after the due date for lodgment of the relevant prescribed return, directors will not have their Director Penalties remitted by placing their company into administration or liquidation.

• For SGC amounts, the reporting due date is generally one (1) month after the due date for payment of SGC to a compliant superannuation fund (eg. 28 August 2012 for the June 2012 quarter).

• In order to avoid personal liability, directors of a company must ensure that their activity statements (for PAYG withholding amounts) and Superannuation Guarantee statements (for SGC amounts) are lodged with the ATO within three (3) months of the due date.

Other

• A newly appointed director of a company is not liable to a Director Penalty for company debts until 30 days after they become a director (ie. a newly appointed director will have a 30 day window of opportunity to determine if there are tax and superannuation liabilities that may attract personal liability).

• Directors and their associates (as defined) will be restricted from obtaining taxation credits for PAYG withheld amounts in their personal taxation returns where the company has failed to pay those withheld amounts to the ATO (even if a DPN has not been issued).

• The ATO may, in addition to serving a Director Penalty Notice (“DPN”) at a director’s address per the ASIC database, serve a copy of the DPN on a director at his/her tax agent’s address;

DPNs - where lodgment is on time

As a timely reminder, the ATO can still issue a DPN to a director who has complied with lodging (but not paying) the required returns within the three (3) month period mentioned above. The DPN will provide a director with 21 days from the date of issue of the DPN (not service) either to:

a) Pay the debt;
b) Appoint an Administrator to the company; or
c) Appoint a Liquidator to the company.

to avoid personal liability for the amount of the DPN.

Action Points

• Encourage lodgment of returns within three (3) months of due date for both superannuation and PAYG;

• Seek advice early to minimize risk of personal liability of directors arising from non-lodgment/non-payment of SGC and PAYG obligations;

• Director Penalties will not be remitted by the appointment of an External Administrator if returns are not lodged within three (3) months of their due date;

• When returns are lodged late and the company wishes to make payment against the late lodgments, clear written instructions should be given to the ATO with the payment stating how the payment is to be allocated. Consideration should be given to making the payments under cover of letter with an accompanying cheque.