29 September 2015
The ATO has taken some time to reveal their new powers to recover debts under the new Director Penalty Notice (DPN) regime. The new regime came into effect on 29 June 2012.
Company directors (and their advisors) need to be aware that as of 29 June 2012, non-lodgement of Business Activities Statements (BAS) and Superannuation Guarantee Charge (SCG) Statements with the ATO now have more significant personal consequences for directors. This is due to the strengthening of the ATO’s powers under the DPN regime governed by the Taxation Administration Act.
Key changes to the Directors’ Penalty Notices regime
The table below outlines the key changes between the old and new DPN regime:
Pre 29 June 2012
Post 29 June 2012
|Directors were personally liable for company’s PAYG withholding amounts (including estimates of PAYG withholding) following the expiration of the DPN (21 days from the date of issue).||
In addition to PAYG withholding amounts directors are personally liable for company’s unpaid superannuation amounts (including estimates of PAYG withholding and SGC).
|New directors are liable if liability is unpaid 14 days after their appointment as director.||New directors are liable if liability is unpaid 30 days after their appointment as director.|
|ATO could only enforce a DPN after 21 days of giving notice to the director.||No change however the notice can now be given to the company's tax agent.|
A director could avoid personal liability by either:
A director can still achieve remission of personal liability in the same way as outlined in the adjacent column.
Where the company’s liabilities (PAYG and SCG) were unreported and unpaid within three months of the due date, remission of personal liability is only available by payment of debt (‘lockdown’).
Lockdown provisions will make the directors personally liable in the event that the company’s liabilities (PAYG and SGC) are unreported and unpaid within three months of the due date.
Bob and Jane are directors of Fresh Food Guys Pty Ltd (Fresh Food), which is required to pay amounts withheld under the PAYG withholding provisions to the ATO on a quarterly basis. During the March quarter, Fresh Food withholds $10,000 from payments made to its employees. Fresh Food fails to report (lodge) and pay any of the withheld amounts to the ATO by the due date (28 April). From that day the ATO is entitled to serve a DPN, making Bob and Jane personal liable to the penalty but this situation can be avoided by either paying the liability, appointing an administrator, or appointing a liquidator.
If Fresh Food fails to report and pay any of the withheld amounts to the ATO within three months after the due date (by 28 July), the ATO is entitled to serve a DPN, making them personally liable, but this time, the only way they can avoid personal liability is by ensuring the company pays the amounts withheld in full.
Subsequently reporting the PAYG liability (three months and one day after the debt became payable) will not have any effect and the director will need to pay the PAYG liability in full to be discharged from the risk of any personal liability.
Closing comments from BRI Ferrier
Tips to help directors avoid personal liability:
Always lodge BAS and SGC statements within three months from the due date (even if the liability cannot be paid). This will prevent the “lockdown” (automatic personal liability for directors) and reserves the rights and options available to directors to avoid personal liability.
Act immediately upon receipt of a DPN.
Consider a payment arrangement with the ATO. This should be considered with care as payments made can be considered as preference payments to the ATO, if a liquidator is appointed.
The director may still be personally liable if a liquidator successfully claims preference payments from the ATO under the provisions of the Corporations Act 2001.
Professional advice should be sought from an insolvency practitioner and/or an insolvency solicitor.
Undertake due diligence before accepting a directorship as you may be deemed personally liable for pre-appointment tax liabilities after 30 days of your appointment.
Ensure your registered office address is up to date with ASIC and advise your tax agent to contact you immediately upon receipt of a DPN.
- Seek professional advice from an insolvency practitioner as to the other options available, aside from liquidation. If there are sufficient assets available the company can potentially compromise debts with creditors and continue to trade through a financial restructure.