The Government has released the draft legislation on how the new director penalty regime will operate. In some cases directors may be personally liable for company Superannuation and PAYG (Withholding) debts which are in existence before the amendments come into operation. Directors should take immediate steps to avoid, where possible, the imposition of personal liability.
Unpaid superannuation guarantee amounts
The proposed director penalty regime will impose personal liability on company directors for unremitted employee superannuation guarantee amounts. An employer must report a superannuation guarantee shortfall to the Australian Taxation Office via lodgement of a superannuation guarantee statement.
The personal liability will apply from the ‘lodgement day’ – i.e., the day a superannuation guarantee statement must be lodged by an employer. The lodgement day is the 28th day of the second month following the end of the relevant quarter eg. for a quarter ending on 31 March, the lodgement day is 28 May in the next quarter.
If an employer fails to lodge a superannuation guarantee statement, the Commissioner will be given the power to estimate a superannuation guarantee charge. Under the estimates regime, the superannuation guarantee charge will be treated as being payable on the lodgement day.
Recovery processes under the new director penalty regime
Under the draft legislation, there will be a new automated recovery process as well as a role for the existing director penalty notice. The recovery process that is applicable will depend on:
• whether the company’s liability has been reported to the ATO and
• when the ATO commences recovery action.
Under the ‘new’ regime, where a company’s PAYG (Withholding) liability or Superannuation Guarantee Charge remains unpaid and unreported 3 months after the due day, the Commissioner of Taxation may take action to recover a penalty (equivalent to the unpaid amounts) without first providing a Director Penalty Notice (DPN).
Note that the new automated recovery process only applies to company debts which remain ‘unreported’ 3 months after the due date. If the relevant Activity Statement (BAS), or Superannuation Guarantee Statement, is lodged within 3 months of the due date, the recovery proceedings under the director penalty regime can only be instituted by first issuing a DPN.
It remains available to the Commissioner to take action to recover the penalty within 3 months of the due date. In such circumstances, the Commissioner must first issue a DPN. The DPN gives the director 21 days to pay the tax, appoint an administrator or cause the company to be wound up. The penalty will be remitted if the director chooses one of these options.
It’s important to note that where a director appoints a voluntary administrator, or causes the company to be wound up, outside the relevant DPN notice period, or where such action is taken more than 3 months after the liability is due and unreported, the director’s personal liability is not remitted. The penalty is only extinguished by payment. Timely response to unreported or unpaid amounts is therefore vital.
What obligations are covered under the ‘new’ DPN regime?
Assuming that the exposure draft legislation is passed in its current form, the ‘new’ director penalty regime will apply to the following company obligations:
• The automated recovery process will apply to all PAYG(W) liabilities with a due date on or after the commencement of the amendments – ie., the day after the Act receives Royal Assent.
• The automated recovery process will ALSO apply to all PAYG(W) liabilities with a due date BEFORE the commencement of the amendments and which were not extinguished by the payment of the tax, appointment of a voluntary administrator or by the winding up of the company BEFORE the commencement of the amendments.
• The extension of the director penalty regime (and estimates regime) to superannuation guarantee charge will apply to superannuation guarantee statement lodgement dates occurring on or after the commencement of the amendments.
What to do?
For companies where a director penalty currently exists, ie., a PAYG(W) obligation is due and unpaid, it is important to ensure that the director penalties are extinguished before the date of commencement of the amendments. Where a company is liquidated, or goes into voluntary administration, before the commencement date, the penalties will not be subject to the automated recovery proceedings that the proposed amendments will introduce.
Where a DPN has been served prior to the commencement date, it will still have effect – ie., the taxpayer will only have 21 days from the date of the issue of the DPN to pay the tax, appoint an administrator or cause the company to be wound up.
In relation to superannuation guarantee charge, personal liability may attach to employee superannuation contributions outstanding as at the date of commencement of the legislative amendments – but only in relation to superannuation guarantee shortfalls for which a superannuation guarantee statement is to be lodged after commencement of the amendments.
To avoid automated recovery proceedings under the ‘new’ director penalty regime, it is important to ensure that all returns – Activity Statements and, where applicable, Superannuation Guarantee Statements – are lodged by the due date. Although adhering to the lodgement timetable won’t extinguish personal liability, it will require the ATO to issue a DPN before recovery proceedings can be commenced.
The consultation period for the exposure draft legislation has now expired. The Government initially proposed that these amendments would be implemented from 1 July. The timeframe for the introduction of the Bill into Parliament is not certain but it is likely to be in the short term. If enacted, the amendments will have effect the day after the Act receives Royal Assent. For this reason it is important that you act immediately.
For more information about the changes to the Director Penalty Regime contact our experienced team of Tax Accountants and Tax Lawyers here at The Quinn Group. If you believe you may need to make changes within your business to protect yourself submit an online enquiry or call us on 1300 QUINNS (784 667) or on +61 2 9223 9166 to book an appointment.