The Government announced New Tax Law affecting all company directors that
With Effect From 1 July 2011:
- The Australian Taxation Office (ATO) will be given the power to commence recovery against directors under the director penalty regime, without providing a 21 day grace period, for certain unpaid company liabilities that remain unreported after three months of becoming due.
- The director penalty regime will be extended to superannuation guarantee amounts, making directors personally liable for their company’s failure to pay employee superannuation.
- In certain circumstances directors and associates of directors will be prevented from obtaining credits for withheld amounts in their individual tax returns where the company has failed to pay withheld amounts to the ATO.
The Old Law
Under the previous law, where a company fell behind on its Pay As You Go Withholding (‘PAYGW’) obligations, the directors could have ended up being liable for these amounts in some circumstances. If the directors received a notice from the Tax Office they had 21 days to take certain action or they become personally liable for the PAYGW. That is, the Tax Office could have sued the director, to recover these amounts.
What are the New Laws and when will the directors become personally liable?
It is now easier for the ATO to collect unpaid PAYGW and super guarantee amounts from the directors personally.
What the changes mean is that you must ensure all BASs are lodged on time. Even if you are unable to pay your PAYGW at this time, it is crucial that the amount owed is reported on the BAS. If an amount remains unreported on the BAS for 3 months after it was due to be lodged, you will no longer be eligible for the ’21 day grace period’ that applies under the current law. The company directors will automatically become personally liable and if the company does not pay the amount it owes to the ATO, the directors can expect recovery action to be taken against them personally. For example, if the BAS was due on 28 October 2011 the amount of PAYGW must be reported to the Tax Office by 28 January 2012, even if you are unable to pay the amount.
The same ‘3 month rule’ applies to compulsory employee superannuation. If the superannuation that was required to be paid on 28 October 2011 is not paid, the company must lodge a superannuation shortfall statement with the Tax Office by 28 November 2011. If it does not lodge this statement by 28 January 2012 the directors will become personally liable for the unpaid superannuation on this date.
What you must do
If you believe that your company will be unable to pay its PAYGW or compulsory superannuation by the due date, we strongly recommend you contact us immediately. The practice of trying to ‘catch up’ later can have dire financial consequences for the directors. If the due date has already passed, the matter is now urgent and action must be taken immediately.
Of course, inability to pay either or both of PAYGW and compulsory superannuation also raises the question of whether the company is solvent for Corporations Law purposes and the severe consequences that flow to directors from breaches of those laws
Please do not hesitate to get in contact with us if you think any of the above may be applicable to your current circumstances.
It is better to be safe than sorry!
