26/11/2014

Directors are liable if their company fails to pay employee super.

The director penalty regime was extended to make directors personally liable for their company's unpaid superannuation guarantee charge (SGC) and pay as you go (PAYG) withholding amounts. They also limit the circumstances in which directors can discharge a director penalty by placing their company into voluntary administration or liquidation.

These changes came into effect from 30 June 2012 and apply to any director penalty outstanding at that date, or later incurred. The Australian Taxation Office (ATO) is now using these powers to crack down on directors of companies who are not making their lodgements and/or payments on time.

Note that the ATO has actually been able to make company directors personally liable for their company's unpaid PAYG for quite some time. The personal liability arises when the ATO issues the director with a "director penalty notice" (DPN) for the amount of the unpaid tax.

However, from 30 June 2012 the director penalty regime was expanded so that directors can now be held personally liable for their company's unpaid employee SGC where it has not been paid by the due date.

The changes have also made sure that it is more difficult for directors to avoid personal liability.

Before 1 July 2012, directors who were issued a DPN could have the penalty remitted by appointing a voluntary administrator to the company or putting the company into liquidation.

Now, for unpaid amounts that were reported within three months of the due date, a DPN will allow the following options available to a director for discharging a penalty within 21 days of the notice being issued:

•    payment of the debt;
•    appointment of an administrator under sections 436A, 436B or 436C of the Corporations Act 2001; or
•    having a liquidator appointed to wind up the company.

However, if the SGC or PAYG is outstanding and was not reported within three months of the due date, the only available option to avoid the ATO taking further action against the director is to pay the ATO the amount specified in the DPN.

If a company enters into and maintains a satisfactory arrangement for the payment of a PAYG withholding or SGC debt, the ATO will not proceed with legal recovery for related director penalties, although they may choose to recommence such actions if circumstances change.

There are defences available to a director under section 269-35 in Schedule 1 to the Tax Administration Act 1953 (e.g. if you took all reasonable steps to ensure that the directors caused the company to comply with its obligations). The ATO will not initiate, or continue, recovery proceedings if they believe a director could satisfy the court that they have a valid defence. The director also retains the right to advance a defence for consideration by the court during the course of any legal recovery proceedings.

For more information regarding this article, please call Brian Hor at Townsends Business & Corporate Lawyers on (02) 8296 6222.