These proposed laws to make directors personally liable for unpaid super and PAYG is now law, as from 29 June 2012. The purpose of the Act is to deter fraudulent activity by ensuring that directors cannot discharge their director penalties by winding up their company when PAYG withholding or super payments are unpaid and unreported 3 months after the due date.
But the new laws go further than was anticipated, affecting not only directors, but also associates of directors and taking effect retrospectively. The impact of these new laws will be far reaching, potentially affecting not only family members and their personal liabilities and with a potentially significant impact on business and the way its conducted.
Some key feature of the new law:
- Directors are personally liable for, and directors’ penalties extend to, PAYG and super payments
- Directors won’t be able to discharge a director penalty by winding up the company when PAYG or super payments are unpaid and unreported 3 months after the due date
- Directors and associates will not be able to use PAYG credit in their own tax returns where a company has not paid the ATO
- A new director isn’t liable for director penalty company debts until 30 days after they become a director
- Associates of a director, which is defined to including partners, the spouse, all relatives and even children of the natural person, can be personally liable for unpaid PAYG and super if they knew or can reasonably be expected to have known about unpaid amounts and they don’t make the director report and pay those outstanding amounts, or report the director to the authorities.
- The Commissioner can estimate unpaid PAYG and super amounts
- The Commissioner can serve a director penalty notice on the director personally and their tax agent’s address
- These changes to the law are retrospective making director’s personally liable for any unpaid and unreported (for more than 3 months) PAYG liabilities outstanding at 29 June 2012.
If you are a director, you must act now!:
- Get your house in order, and late returns up to date now
- From now on always be up to date with your returns or at least get them lodged within 3 months of the due date
- Think about and if necessary change the way you conduct business. Stay on top of debt recovery, be strict with credit limits, and obtain personal guarantees from directors of companies that owe you money
So what does all this mean to me as a director?
If you are a director, and your company has a tax liability that is either unreported and unpaid for more than 3 months after the due date, the director is immediately and automatically personally liable for that amount, or an estimated amount. But for the ATO to enforce the personal liability, the ATO must issue a Director Penalty Notice, and once that notice has been served the director will not be able to avoid personal liability by winding up the company. In other words, the service of a Director Penalty Notice is a prerequisite to the enforcement of the debt against the director personally.
However, where a company is wound up BEFORE a penalty notice is served on the director, the director will still be personally liable, however the ATO will not be able to enforce that debt against the director.
Also, when returns are late, ie not lodged within the 3 months due date, merely lodging returns and superannuation statements so that they are up to date will NOT discharge the director’s personal liability. Once they are late, the director is personally liable.
If you’d like to read the Explanatory Memorandum to the new laws, click here. Or if you have any questions at all in relation to your duties as a director, drop us a line, email us at [email protected] or call us on 02 8006 0830.
Disclaimer: The material contained on this website is provided for general information purposes only and does not constitute legal advice. You should not depend upon any information appearing on this website without seeking legal advice. We do not guarantee that the contents of this website will be accurate, complete or up-to-date.