Changes to ATO Director Penalty Regime – Personal liability of Directors for Company debts

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The personal liability of directors for company debts has been significantly changed by recent amendments to the Tax Administration Act 1953 (Cth).

Former ATO Director Penalty Regime

Under the previous ATO Director Penalty regime, directors would be held liable for a company’s unremitted PAYG withhold tax (i.e. the estimated income tax withheld from employee salaries and director fees) if the director did not comply with an ATO-issued Director Penalty Notice (“DPN”).  The former regime effectively allowed directors to avoid personal liability by placing the company into administration within 21 days of receipt of the DPN.

New ATO Director Penalty Regime

Some of the material changes to the director penalty regime include:

  1. Directors will be personally liable not only for company PAYG withholding tax but also for employee superannuation guarantee charges.
  2. Directors will not be able to avoid personal liability by placing a company into administration where the company has not lodged its necessary returns and the PAYG and/or superannuation debts are at least 3 months overdue.
  3. A new director will not be held personally liable for PAYG withholding tax and superannuation obligations within 30 days of commencement as a director.
  4. Where the company has not remitted PAYG withholding amounts in respect of fees or salary paid to a director or associate, the ATO can prevent the director or associate from claiming a PAYG credit on their personal tax returns and levy PAYG withholding non-compliance tax on the director or associate (i.e. effectively, requiring the director to personally pay the PAYG income tax that ought to have remitted to the ATO by the company).

The new director penalty regime applies to private companies (“Pty Ltd”) and public companies (“Ltd”), including not for profit companies limited by guarantee.  In addition, committee members of incorporated and unincorporated associations are also liable under the director penalty regime.  The new regime came into effect on 29 June 2012 and, taking a conservative approach, applies retrospectively.

Particularly for new directors it is important that during the first 30 days after their appointment they undertake rigorous due diligence of the company’s PAYG and superannuation records.  If the director is not satisfied with the outcome of those enquiries he or she ought to take independent advice immediately with a view to resigning.

For more information regarding the Personal Liability of Directors for Company Debts

Please contact our Business Development Team or call us on (07) 3252 0011 to book an appointment with one of our specialist Commercial Lawyers today.