ATO Ramps up Directors’ Liability on PAYG and Super

No more Warnings, No Payment Plans, No Excuses     

Pay in Full and on Time – Or Else!

On 13 October 2011 the Federal Government introduced new tax legislation. The intention of the new legislation is twofold:

  • To deter fraudulent phoenix (rising from the ashes) company activity; and
  • To protect employee superannuation entitlements.

Old Law

Under the old law directors were personally liable for the company’s unpaid PAYG withholding amounts as well as estimates of PAYG withholding liabilities. The liability did not extend beyond PAYG. In addition, prior to the ATO taking any action, it issued a Director’s Penalty Notice (“DPN”) and allowed directors 21 days to do one of three things:

  1. Pay the full amount of PAYG;
  2. Appoint an Administrator to the company; or
  3. Wind up the company.

This is no longer the case.

New Law

The new law makes directors personally liable for not only unpaid PAYG withholding, but also unpaid superannuation guarantee charges (SGC).

Under the new law the Commissioner does not have to and will not issue any warnings, namely a DPN. If the company has an unreported and unpaid debt that is three (3) months old, the Commissioner can and will commence recovery proceedings without issuing a DPN. Any inadvertent administrative errors could result in immediate recovery proceedings being commenced by the ATO. This is a much tougher regime than in the past… no warnings given and no excuses accepted!

Liability of Family Members

The new law also exposes ‘associates’ – namely family members and other associates of the company to personal liability. This will be done by imposing a new PAYG withholding non-compliance tax equal to the amount of any PAYG credits to which the family member is entitled in respect of payment received from the company.

It is important to note that there needs to be no fraud on behalf of family members. If he or she:

  • knew, or ought to have reasonably known of non-compliance; and/or
  • was treated more favourably than other employees (regardless of the knowledge); then

the tax can and most likely will be applied.

Liability of New Directors

New directors also have to be alert and keep in mind these new changes as they can become personally liable for  outstanding PAYG and SGC after 14 days from their appointment.

What Should you Know?

Directors of individual companies need to immediately review their PAYG and SGC lodgement histories and assess the extent of any unpaid and / or unfunded liability. The key is, that under these new rules ‘I didn’t know’ is not a defence. You need to understand whether you, your co-directors, and even family members are potentially exposed.  If you are concerned, we  urge you to  contact Helena Mrmos at helenam@redchip.com.au to discuss and assess your position

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