As a director, it’s important that you ensure your company complies with its taxation obligations, or else risk personal liability for outstanding Pay As You Go and Super Guarantee Charge.
Where a company does not meet its obligations to pay Pay As You Go (PAYG) and the 9.5% Super Guarantee Charge (SGC) on payroll by due date, the directors of the company may be personally pursued by the Australian Taxation Office (ATO) under the director penalty regime.
A Director Penalty Notice (DPN) can have serious consequences for a director of a company. In this article we outline risk minimisation strategies to avoid action under the regime, as well as steps to take when faced with a DPN.
New Directors
If you are considering accepting appointment as a director to a company, you should be aware that you may become personally liable for unpaid PAYG and SGC, and that you have up to 30 days after your appointment to take the relevant action to avoid becoming liable.
To avoid personal liability the director will need to ensure that one of the following courses of action is undertaken:
- the Company’s unpaid PAYG and SGC debt is paid;
- an administrator is appointed to the company; and
- the company begins to be wound up.
Retired Directors
A director cannot avoid personal liability for outstanding PAYG and SGC by simply resigning as director of a company.
Be aware, even if you are no longer a director of a company, a director’s penalty may still apply.
A director remains liable under the director penalty regime for PAYG and SGC liabilities which were due up to the date of their resignation, and in respect of liabilities which fell due after resignation but where the first withholding event in the reporting period occurred prior to resignation.
Director Penalty Notice
In order for the ATO to recover the outstanding PAYG and SGC from a director, the ATO must follow a specific procedure before being entitled to commence proceedings to recover the debt from a director.
The first step is for the ATO to issue a Director Penalty Notice (DPN).
A director must take action in response to a DPN within a 21 day timeframe. Directors should be aware that the 21 day time frame commences from the day the DPN is posted by the ATO to the address listed on the ASIC Register. Unfortunately, directors frequently assume that the 21 day period commences when they receive the DPN. This can be an expensive mistake.
Directors should be aware that even if a director has moved and the ASIC register has not been updated, a director is unable to use this as an excuse for not taking action with the 21 day timeframe from the date the DPN was posted.
Accordingly, directors need to ensure that they are diligent in updating their details on the ASIC register.
The ATO can issue two types of DPN – ‘Lockdown’ or ‘Non-Lockdown’.
A Non-Lockdown DPN is issued where the debt is less than three months old or the Business Activity Statement and Superannuation Guarantee Charge Statements have been lodged within 3 months of the due date.
If a director receives a Non-Lockdown DPN, to avoid personal liability the director will need ensure that one of the following courses of action is undertaken:
- the Company’s unpaid PAYG and SGC debt is paid;
- an administrator is appointed to the company; and,
- the company begins to be wound up.
A Lockdown DPN is issued when the debt remains unreported and unpaid three months after the due date.
In the event, that the debt remains unreported and unpaid three months after the due date, a Lockdown DPN can be issued even after an administrator or a liquidator has been appointed to the company.
If a director receives a Lockdown DPN, to avoid personal liability the director will need ensure that the Company’s unpaid PAYG and SGC debt is paid.
We recommend that directors should ensure that PAYG and SGC liabilities are paid when due. Failing that, at an absolute minimum we recommend that directors should ensure that PAYG and SGC liabilities are paid within three months of due date.
Defences
A director will not be liable for a director penalty if one of the defences under the relevant legislation is available, namely that:
- Because of illness or for some other good reason, did not take part (and it would have been unreasonable to expect you to take part) in the management of the company
- Took all reasonable steps to ensure that one of the available remission options happened
- There were no reasonable steps that could have been taken to ensure any of the remission options happened
Receipt of a DPN
Do not ignore a DPN if it’s received. The consequences of not taking one of the remission options within the timeframe, will be the director being held personally liable and may result in the ATO commencing proceedings to recover the outstanding penalty.
If you receive a DPN, we recommend you immediately seek professional advice to work out an appropriate course of action.
If you need any guidance or assistance with a corporate restructuring, insolvency or a personal bankruptcy matter, please contact one of the William Buck Business Recovery Specialists.
