How to avoid director penalty notices
Jan 05, 2021If you are a director or former director of a company and the company does not meet its pay as you go (PAYG) withholding, goods and services tax (GST) or super guarantee charge (SGC) obligations, the Australian Taxation Office (ATO) may recover those amounts from you personally. This means the ATO is allowed to “pierce the corporate veil” by attributing liability for the amounts owed by the company to you as a director.
Process
The ATO can issue a ‘Notice of estimate of liability’ (“Estimate Notice”) if it believes that you have overdue:
- PAYG withholding amounts; or
- SGC that has not been assessed.
An Estimate Notice is a formal notice that the ATO can issue under section 268-15 of Schedule 1 to the Taxation Administration Act 1953.
Subsection 269-30(2) directs attention to the date when the relevant underlying liability the subject of a Estimate Notice became due, assuming that liability to exist in the same way the estimate does.
Also, the introduction of s 269-10(6) in the Treasury Laws Amendment (2018 Measures No. 4) Act 2019 was intended to ensure that the directors of a company at the time of the underlying liability (rather than only those directors holding office as at the date of the Estimate Notice) come under the obligations imposed by Div 269 for the whole period commencing on the day the underlying liabilities became due (Lee v Deputy Commissioner of Taxation; Silverbrook v Deputy Commissioner of Taxation [2020] NSWCA 95).
The ATO provides the following information:
Before you become a Director
If you are about to become a director of a company, check for any unpaid or unreported PAYG withholding, goods and services tax (GST) or SGC liabilities.
If you become a director and the company has outstanding PAYG withholding, net GST or SGC obligations, you will become personally liable for a penalty equal to these amounts (“Director Penalties”).
As a new director, you have 30 days, starting on the day of your appointment, before you become liable to director penalties equal to:
- all of the company’s unpaid PAYG withholding liabilities
- all unpaid net GST liabilities (inclusive of Luxury Car Tax and Wine Equalisation Tax) from 1 April 2020;
- all unpaid SGC liabilities from 1 April 2012.
However, as a new director, you will not be liable to director penalties for amounts due before your appointment if, within 30 days starting on the date of your appointment, the company does one of the following:
- pays their PAYG withholding, net GST and/or SGC debt in full
- appoints an administrator under section 436A, 436B or 436C of the Corporations Act 2001
- begins to be wound up (within the meaning of the Corporations Act 2001).
No longer a Director
If you are no longer a director, you remain liable for director penalties equal to the unpaid PAYG withholding, net GST and SGC liabilities of the company that:
- were due before the date of your resignation
- fell due after your resignation when
- for PAYG withholding and net GST (inclusive of LCT and WET)), the first withholding event in the reporting period occurred before your resignation
- for SGC liabilities, the date the charge became payable.
What does this all mean?
To avoid director penalties, take steps to have the company lodge and pay its:
- PAYG withholding to the ATO by the due date
- Net GST (inclusive of LCT and WET) to the ATO by the due date;
- super guarantee to employees’ super funds by the due date or, if that doesn’t occur, lodge a super guarantee statement and pay the resulting SGC liability to the ATO.
If you do not, you risk being liable for these amounts to the ATO. In the case that you do not pay, the Commissioner of Taxation may pursue debt recover court action against you which may result in further financial strain and perhaps even imprisonment if you are unable to satisfy the debts.
Contact the Shire Legal team if you have any questions.
Stay informed
Sign up to receive regular updates regarding changes to the law, Court decisions and other happenings of interest.
