On 29 June 2012 new Director Penalty laws came into existence. The new laws mean a Director may be held personally liable for:
- unpaid PAYG tax debts of a company
- unpaid superannuation guarantee payments of a company
To be able to recover the Director Penalty, the Australian Taxation Office must issue a Director Penalty Notice. If this does not occur, the ATO cannot recover the director penalty from the directors.
And typically, the ATO will only issue a Director Penalty Notice following a long history of broken promises and failed payment arrangements, or when a company and its directors have lost all credibility in the eyes of the ATO.
Whatever the case, if a Director Penalty Notice is issued, it works differently in the 2 circumstances described below.
Where all BAS & Super Lodgements are Up to Date
If the ATO issues a Director Penalty Notice in circumstances where all BAS returns and Superannuation lodgements are up to date, even where there is unpaid PAYG and superannuation debts, the directors will be allowed a 21 days grace period in which to comply with the notice and thereby avoid personal liability for the outstanding PAYG and superannuation debts of the company.
Compliance with a Director Penalty Notice includes a) paying the debt, b) appointing a liquidator or c) appointing an administrator within the 21 day grace period.
Failure to comply leads to personal liability for the company’s tax debt.
Where BAS & Super Lodgements are Outstanding
More Than 3 Months Past the Due Date
If the ATO issues a Director Penalty Notice in circumstances where BAS and Superannuation lodgements have not been made within 3 months of the due date, the directors will not be allowed any period of grace and will be automatically personally liable as soon as the notice is issued for the unpaid PAYG and super debt of the company.
This means there is no 21 day grace period and further, that a director will not be able to avoid personal liability for company debts by placing a company into liquidation or administration. In other words, the tax debt must be paid.
Where No Lodgements Have Been Made
In situations where lodgements have not been made does not mean the ATO is precluded from acting to hold a director personally liable for a company tax debt on the basis that it doesn’t know the amount involved.
The ATO can issue estimates of what they believe may be the debt of a company and can then issue a Director Penalty Notice based on those estimates.
Accordingly, if your company has outstanding returns more than 3 months past the due date for lodgement, and you believe you have a viable business, you must immediately bring all lodgements up to date (although this does not relieve your personal liability for the director penalty) and then consider appointing a Voluntary Administrator to restructure the company.
Alternatively, if you business is not viable and you are unable to bring lodgements up to date, you must consider liquidating the company immediately and before the ATO issues a Director Penalty Notice.
Presently the ATO does not issue Director Penalty Notices when a company is in liquidation.
If you have a tax debt, and believe a Director Penalty Notice may be on the way, call The Insolvency Experts immediately on 1300 767 525.
YOU MUST ALWAYS LODGE ALL RETURNS WITHIN 3 MONTHS OF THE DUE DATE OR YOU WILL NOT ESCAPE PERSONAL LIABILITY FOR COMPANY TAX DEBTS IF A DPN IS ISSUED!