Did you know that a person who is a director of a company for only one day may become personally liable for a company’s entire superannuation guarantee and PAYG withholding debt?
The amendments to the Director Penalty regime contained in the Taxation Administration Act (1953) introduced in June, 2012 could provide for this situation.
Director Penalty Regime
The Director Penalty Regime is designed to ensure that directors ensure the company complies with certain taxation and superannuation obligations. The ATO may issue a Director Penalty Notice (DPN) equal to the company’s unpaid superannuation and PAYG withholding amounts. In order to discharge a penalty a director must ensure the company, within 21 days to either:
- Pay the debt
- Make an arrangement to pay the debt*
- Place the company into voluntary administration
- Place the company into liquidation
In the event the company has not reported the unpaid amounts within 3 months, the only way to discharge the penalty is to pay the debt in full.
* A DPN is only issued where the debt has been outstanding for some time and the longer the debt is outstanding the less likely the ATO is to accept an arrangement to pay the debt off (a large up-front payment with the balance paid off within 6 months and proof of the company’s ability to make repayments would probably be required).
It is more likely that this payment arrangement would be accepted before the DPN is issued. However, option 1 an 2 should be considered before option 3 and 4.
Directors should be aware that they cannot absolve themselves of potential personal exposure simply by resigning as a director.
Former directors may be liable for penalties which were due up to the date of their resignation.
Former directors may also be liable for penalties after their resignation, where the first withholding event in the reporting period occurred prior to their resignation.
New Directors may be liable for penalties following their appointment and also for debts prior to their appointment. New directors have 30 days from the date of their appointment before they become liable for unpaid superannuation and/or PAYG withholding.
Directors can avoid liability for penalties if:
- They were ill or were not involved in the management of the company
- They ensured one of the following happened
- The company paid the outstanding amount
- An administrator was appointed
- The company was wound up
If you are have any concerns about your directorship, or are thinking about becoming a director, it’s a good idea to talk to us.
Kreston Stanley Williamson Team
*Correct as of March 2016
*Disclaimer – this article has been produced by Kreston Stanley Williamson as a service to its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas contained in this article, it is imperative you seek specific advice relating to your particular circumstances. Liability limited by a scheme approved under professional standards legislation.