The Director’s Penalty Regime (‘DPR’) was introduced in 1993. The main objective of the DPR is to ensure that directors cause their companies to meet the relevant tax obligations or promptly put the company into administration or liquidation.
Initially, directors faced possible personal liability for failing to ensure that a company complies with the obligation to remit pay as you go (‘PAYG’) withholding. However, directors could avoid personal liability by promptly placing their company into voluntary administration or liquidation.
Recent amendments to the law limit the circumstances in which directors can discharge a director penalty by placing their company into voluntary administration or liquidation. Furthermore, the changes have extended the director penalty regime to make directors personally liable for their company’s unpaid superannuation guarantee charge (SGC) and pay as you go (PAYG) withholding amounts. These changes came into effect from 30 June 2012 and apply to any director penalty outstanding at that date, or subsequently incurred.
The changes to the director penalty regime will not affect directors if they ensure their company complies with its PAYG withholding and superannuation guarantee requirements under the law.
If your company fails to pay an SGC or PAYG withholding amount, as a director, you become personally liable for a penalty equal to the unpaid amount. As a director, you can discharge a penalty by either paying the debt or placing the company into administration or liquidation, however, you:
o cannot have the penalty discharged through voluntary administration or liquidation if you did not report either of the following within three months of the due date
the outstanding SGC liability for the June 2012 quarter or later quarters
PAYG withholding liability.
o cease to have the ability to discharge a penalty through administration or liquidation on the 21st day after the notice was posted.
Newly appointed directors have 30 days before they become liable to penalties equal to:
o all their company’s outstanding PAYG withholding liabilities, and
o any outstanding SGC liabilities that arose after 30 June 2012.
It is important to note that the ATO is currently focusing on the directors of companies with unpaid superannuation guarantee obligations. If you find yourself in this position, you need to act without delay. Call the dedicated lawyers at The Quinn Group on 02 9223 9166 or submit an online enquiry.