If you are trading through a PTY LTD company, the usual rule is that a director is not liable for the company’s debts – however there are a number of ways a director can become liable for company tax debts.

The Director Penalty Regime

The ATO has power to hold a director personally liable for company tax debts in certain specific circumstances.

The taxes involved are:

• unpaid PAYG
• unpaid superannuation guarantee payments

The penalty regime does not cover unpaid GST or company tax.

Director Penalty Notice 

To hold a director personally liable for company tax debts, the ATO must issue a Director Penalty Notice that informs a director that unless they comply with the notice within the specified time, they will be personally liable for company tax debts.

Compliance must be achieved within 21 days of the date on the notice, by the company doing one of the following:

• paying the debt
• appointing a voluntary administrator
• appointing a liquidator

Failure to do one of the above within 21 days will lead to a director being personally liable for company tax debts.

A Director Penalty Notice works in 2 ways

First, where BAS & Super returns are up to date with all having been lodged within 3 months of the due date, a director is allowed 21 days to comply with the notice. If compliance is achieved, personal liability is avoided.

Second, where BAS & Super returns have been lodged more than 3 months after the due date, a director is immediately personally liable for the company tax debts. Personal liability cannot be avoided so if the company can’t pay, the director must pay.

Where no returns have been lodged, the ATO can issue an estimate of the amount it believes is outstanding and then issue a Director Penalty Notice based on that estimate.

Two types of Director Penalty Notices

• Director Penalty Notice where 21 days is allowed to avoid personal liability
• Director Penalty Notice with no escape of personal liability

If you have a tax debt, call The Insolvency Experts immediately on 1300 767 525