Taxation Administration Act 1953 (Commonwealth)
What can the director do to avoid personal liability?
Ensure the company pays the outstanding amount on or before the 21st dayafter the Director Penalty Notice has been issued
Ensure that the company has reported its PAYG within 3 months and SGC liabilities within 28 days to the ATO of their due dates
Arrange for the company to be placed into voluntary administration or liquidation at any time on or before the 21st day after the Director Penalty Notice has been issued
Directors have a legal responsibility to ensure that the company meets its pay as you go (PAYG) withholding, GST and superannuation guarantee charge (SGC) obligations.
If the company fails to meet a PAYG withholding, GST or SGC liability by the due date,the director automatically becomes personally liable for a penalty equal to the unpaid amount. When a PAYG withholding, GST or SGC liability remains outstanding, the ATO may issue a Director Penalty Notice, which is necessary to start legal proceedings to recover thepenalty.Even without issuing a notice, the ATO can collect the penalty by other means, such as withholding a tax refund.
Directors’ Penalty Regime
The Commissioner has the power to commence recovery action against company directors under the Director Penalty Notice (DPN) regime for unpaid company taxation liabilities that remain unpaid or unreported after three months of becoming due.If a company fails to comply with its obligations under the PAYG withholding system, GST (from 1 April 2020) or the Superannuation Guarantee Charge (SGC) provisions, then the company directors are held personally liable for the amount the company should have paid.
There are two types of DPNs, being:
- Non-lockdown DPNs – Non-lockdown notices are issued to company directors who have lodged business activity statements( ‘BAS’), instalment activity statements within three months of their due date or superannuation guarantee statements within 28 days of the due date for lodgement, but the PAYG withholding, GST, and/orSGC debts remain unpaid. The notice gives directors 21 days to take certain actions, which results in the penalty being remitted – that is cancelled.
- LockdownDPNs – Lockdown notices are issued to company directors where a company has failed to lodge its BAS, instalment activity statements, within three months of their due date or superannuation guarantee statements 28 days of their due lodgement date. In this case, the penalty permanently locks down on the director and there is no ability to remit, that is, cancel, the penalty other than by paying the debt in full.
The ATO may also serve a copy of a DPN on the company director at his or her tax agent’s registered address.
When does a director become personally liable for penalties?
Where the company fails to report its PAYG withholding or GST within the three months of the due date or SGC liabilities (from and including 30 June 2012), within 28 days of the due dates and the director penalties cannot be remitted, directors will be personally liable for unpaid PAYG withholding , GST or SGC amounts. This liability continues even where an administrator or a liquidator is appointed.
It is advisable for directors to ensure their address details are up to date with ASIC in the event that a DPN is issued.