Have you just been served and you don’t event know it?
Many directors are aware that they can become personally liable for certain unpaid taxation liabilities. If you are a director, you must ensure your company is able to pay deducted or withheld tax, or take other remedial action, by the time it is due for payment.
As a director, if you fail to pay the company’s tax or take the appropriate remedial action before the tax is due, you automatically become liable for a penalty in the amount of the tax that is unpaid. The provision encapsulates anyone who was a director at any time from when the tax was deducted to when it become payable.
The ATO does not need to issue any notices or take any action to create the penalty, however the ATO is unable to commence proceedings to recover penalty without issuing a Directors’ Penalty Notice (DPN).
The DPN provides directors with a final opportunity to extinguish the personal liability by either paying the debt or placing the company into voluntary administration or liquidation within 21 days of the date of the notice. If you do so, you are absolved of personal liability.
Draft legislation has been introduced into Parliament by the Government to expand and refine the DPN regime to impose personal liability on directors for unremitted SGC in addition to unpaid PAYG. The draft legislation also includes provision to allow the ATO to immediately commence recovery of all director penalties when the liability remains unpaid and unreported 3 months after the due date. Further, the ATO will have the discretion to prevent directors from obtaining PAYG withholding credits which have not been remitted to the ATO.
The ATO will, from the day after the Bill receives Royal Assent, have an automatic right of recovery against directors where PAYG debts are in existence before the commencement date of the new legislation and where the obligation was unreported three months after the due date, regardless of whether the obligation has subsequently been reported.
To make matters worse, the personal liability will not be rescinded by placing the company into voluntary administration or liquidation, which means the only means of discharging the personal liability will be to pay the debt in full or place the company into voluntary administration or liquidation before such time the Bill receives Royal Assent.
The Bill is currently before the House of Representatives and will likely become operational in the short term.
If you need more information on Directors’ Penalty Notices, contact The MBA Partnership on 5557 8700 or visit our website at www.mbapartnership.com.au.
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