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Protecting Your Assets, Taxation

New Tax Laws Strengthen Director Obligations!

This comes as a result of the Federal Government’s ‘Action against fraudulent phoenix activity’ document published in March 2009.

In summary, the new legislation:

  1. Requires Companies under their reporting obligations in respect of PAYG and Superannuation Guarantee Charge (“SGC”) in respect of employees to comply within three months of the due date otherwise a Director will be automatically personally liable without further notice and will be unable to appoint an Administrator or Liquidator to cure themselves from that liability;
  2. Allows the ATO to reduce a Director’s entitlement to PAYG withholding credits thereby increasing the amount of tax paid in a Director’s personal tax return; and
  3. Permits the ATO to collect outstanding SCG from Directors personally (this aspect is not retrospective).

Initially this was designed to protect employee entitlements and strengthen Director’s obligations and overcome previous limitations in the legislation including:

  1. Previous Director Penalty Notices and estimates applied only to PAYG
    withholding liabilities.
  2. The Director’s ability to achieve remission of Director’s penalties by
    placing Companies into administration or liquidation when served with a
    Director Penalty Notice, irrespective of the length of time that the liability
    had remained unpaid and unreported.
  3. The Director’s ability to benefit from using PAYG withholding credits to
    offset their own personal income tax liability when the Company had not
    paid PAYG withheld amounts to the Commissioner.

In previous legislation the Director was always able to have their Director penalty personal liability remitted by paying the debt, appointing an Administrator or winding the Company up.

Although the previous regime continues to apply, the important matter to note is that where 3 months have elapsed after the due date and where the liability remains unpaid and unreported, a Director cannot have their Director Penalty remitted by appointing an Administrator or winding the Company up and will be personally liable regardless.

In addition, if the Company has not remitted to the ATO PAYG withholding amounts the ATO has a discretion to reduce the Director’s entitlements to those credits in their personal tax return effectively increasing the amount of tax a Director will pay if they complete a personal return.

It will now be known as “Pay as you Go Non Compliance Tax”.

It is important to note that the ATO has a discretion to reduce entitlements to PAYG withholding credits and impose the non compliance tax on current Directors, former Directors and even associates of Directors including family members.

The Tax Administration Act, 1953 has been amended to make Director Penalty Regime include outstanding SCG or an estimate of SCG made by the ATO, so that Directors are personally liable for unpaid SCG once the due date for payment has passed. The due date is the date the Company is liable to lodge their SCG statement with the ATO. Under this change the penalty that the Director will pay is the amount of outstanding SCG either:

  1. Assessed by the Company upon lodgement of their SCG statement; or
  2. As assessed by the ATO through a default assessment or an estimate made
    by that body.

This could have significant ramifications for Directors personally.

Other relevant changes included the fact that if you have given the address of a Registered Tax Agent to the ATO as your address for service the ATO may give notice by leaving a copy at the address of the registered Tax Agent not yours.

The only good news is that new Directors do not become liable for Director Penalty Personal Liability until 30 days after your become a Director.

In summary it is essential:

  1. To ensure reporting compliance with the ATO within three months of any
    due date to avoid Director’s personal liability;
  2. If a Company is unable to pay its obligations to the ATO, be
    proactive by consulting with a relevant Insolvency specialist; and
  3. To contact your Tax Agent if you are at all concerned about compliance
    with the new regime.

Our understanding is that it will be “gloves off” from the ATO after Xmas.

At Priority Business Lawyers we have a specialist team who can provide you with advices in a timely manner in respect of the new compliance regulatory regime concerning PAYG and SGC.

If you have a query or are concerned about your Company’s compliance regime, we suggest that you consult with us immediately on 4305 3500

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