25 February 2020
Under existing legislation, the Australian Taxation Office (ATO) has the ability to make company directors personally liable for unpaid PAYG Withholding Tax and Superannuation Guarantee liabilities, however recent changes mean that in addition to this, from 1st April 2020 directors can also be held personally liable for Goods & Services Tax (GST). This could potentially expose directors to a large portion of the debts of their company.
Tax debts have long been seen by directors as the last debts to be paid, with wages and suppliers taking precedence when cashflow is tight. The director penalty regime laws were designed to change the way directors view company tax debts by making them personally liable, while increasing the level of tax compliance and debt recovery by the ATO.
There are two types of Director Penalty Notices (DPNs) that can be issued to directors. A ‘Non-lockdown’ DPN can be issued by the ATO when a company has satisfied the lodgement requirement, but a debt remains unpaid. In this instance, directors have 21 days to either pay the debt in full, enter into an ATO payment arrangement for the outstanding debt, or put the company into liquidation or voluntary administration.
Alternatively, ‘Lockdown’ DPNs are issued when a company director has failed to lodge Business or Instalment Activity Statements within three months of their due date, or Superannuation Guarantee Statements within 28 days after the end of each quarter. Under a Lockdown DPN, directors have no option but to remit the full amount of the debt (as personal liability cannot be avoided by winding up the company).
These measures, along with the ever-increasing powers of the ATO, mean that company directors will need to place more focus of ensuring lodgements are made on time – even if the funds to pay the debt in full are not available immediately. The importance of seeking advice from a trusted, professional advisor early on should not be underestimated, especially given that even new company directors can be held personally liable for past company debts that remain unpaid.
If you have any concerns regarding DPNs or would like further information on meeting your obligations as a company director, please contact the team at UHY Haines Norton Gladstone on 4972 1300.