The ATO can issue Director Penalty Notices for unpaid PAYG Tax or superannuation which is payable to the ATO as Superannuation Guarantee Charge (SGC).
More often than not company directors do not understand how the provisions relating to Director Penalty Notices work and they therefore end up with large personal tax debts for director penalty amounts. This can lead to financial difficulty or even bankruptcy.
If a company fails to pay PAYG Tax and superannuation, then the ATO can issue a Director Penalty Notice for these debts. In brief summary there are two types of Director Penalty Notices which the ATO can issue:
- 21 Day Director Penalty Notices which apply where a company fails to pay PAYG Tax or superannuation but it lodges its BAS or Superannuation Guarantee Charge Statements (SGC Statements) within the periods set out below. In these circumstances, the ATO is able to issue a Director Penalty Notice to the company’s directors, however, the directors can avoid liability if the company is placed in liquidation or voluntary administration within 21 days of the date of the notice.
- Lockdown Director Penalty Notices which apply where a company fails to pay PAYG Tax or superannuation and it also fails to lodge BAS within three months of the due for lodgement or SGC Statements within one month and 28 days of the end of the quarter in which the superannuation was accrued. In these circumstances the directors of the company are automatically personally liable for unpaid superannuation and the ATO can issue a Director Penalty Notice to recover unpaid amounts from the directors.
So what should company directors do to avoid Director Penalty Notice risks?
- Lodge BAS, IAS and SGC Statements within the periods set out above. If you do this, even if the company does not pay required amounts and the ATO issues a Director Penalty Notice you can avoid liability by placing the company in liquidation or voluntary administration within 21 days of the date of the notice.
If you don’t make these lodgements within required periods you cannot avoid liability under a Director Penalty Notice by appointing a Liquidator or Voluntary Administrator to your company.
- Make sure your address is up to date with the ASIC. The ATO sends Director Penalty Notices to a director’s address as per the ASIC’s records. If you do not receive a Director Penalty Notice because you have changed address, this is not a defence and you will be personally liable for amounts under the notice.
- If your company has a debt to the ATO, enter into a payment arrangement. The ATO will not issue a Director Penalty Notice while a payment arrangement is in place and being complied with.
- Prioritise paying superannuation. Often directors of companies in financial difficulty stop paying superannuation, not knowing that they can be personally liable for unpaid superannuation under the ATO’s Director Penalty Notice regime.
- Be careful if you are being appointed as a director of an existing company. If you become a director of an existing company you can be personally liable for any outstanding PAYG Tax and superannuation owed prior to your appointment as well as liabilities incurred after you become a director.
- Be careful if you are resigning as a director of a company as resigning as a director does not extinguish personal liability for unpaid PAYG Tax and superannuation incurred during the period of your directorship.
- Get professional advice early if your company encounters financial problems. A solicitor or Registered Liquidator will be able to advise you on all risks which you may face.
Advice and assistance
If you cannot pay your tax or superannuation debts on time the ATO is likely to take action either against your company or you personally. However, we can assist you in these circumstances.
So if you are falling behind with payment of tax or employees’ super, or you need financial assistance in general, please get in contact with us for a free, no obligation discussion.