With Jobkeeper now at an end, this seems like an opportune time to provide a refresher for directors to ensure they understand how they could become personally liable for outstanding company taxation debts.
In April 2020, the ATO widened the net for personal liability, from unpaid pay as you go “(PAYG”) withholding and superannuation, to now include goods and services tax (“GST”), wine equalisation tax (“WET”) and luxury car tax (“LCT”). The changes only apply for tax periods after 1 April 2020. As with PAYG and superannuation, personal liability for these new additions to the regime will be enforced automatically as soon as the debt becomes unpaid as at the due date.
Separate to this issue, the ATO provided directors with a once off opportunity to self-correct historical non-compliance of SGC lodgements relating to the period 1 July 1992 to 1 March 2018 only. The amnesty period ended on 6 September 2020 and if a company now lodges its SGC statement late, the company will be liable for a penalty up to 200% of the SCG amount owing for the relevant period.
Where a company has any unpaid taxation debts, the ATO can issue one of two types of penalty notices to a director; a lockdown or non-lockdown notice.
Lockdown Penalty Notice
Where a company does not report on PAYG or GST (and WET and LCT) within three months after the lodgement due date, or the superannuation is not reported within 1 month and 28 days after the end of the relevant quarter, a director can be immediately held personally liable and a lockdown penalty notice can be issued. This can only be satisfied with the payment of the outstanding debt.
Appointing a liquidator or voluntary administrator to a company will not avoid liability for lockdown Director Penalty Notice (“DPN”) amounts, and the ATO can:
- Issue lockdown DPNs after a company is placed in liquidation or voluntary administration; and
- If necessary, base lockdown DPNs on estimates of a company’s superannuation or PAYG liability.
Non-Lockdown Penalty Notice
In the instance where the lodgements have been made within the relevant timeframes but the accompanying debt is not paid on time, the ATO can then issue a non-lockdown notice. The director can avoid this liability by ensuring the company:
- Pays the outstanding debts in full; or
- Appoints a voluntary administrator; or
- Appoints a small business restructuring practitioner; or
- Appoints a liquidator.
These actions must be taken within 21 days starting on the date on which the ATO posts the notice.
New Directors
In a scenario where a new director has been appointed to a company with outstanding taxation obligations, that director will become personally liable for any debts that were incurred and unpaid prior to their appointment. The director can avoid this liability by ensuring the company:
- Pays the outstanding debts in full; or
- Appoints a voluntary administrator; or
- Appoints a small business restructuring practitioner; or
- Appoints a liquidator.
These actions must be taken within 30 days starting on the date of their appointment.
Received a DPN?
A penalty notice, irrespective of the type, can have serious implications for a director and their business. Any recipient of a penalty notice should immediately seek advice from a qualified professional advisor.
The team here at GT Advisory & Consulting are available to discuss any notices that have been received and provide alternative options that may be available. This initial consultation is obligation free and is provided at no charge, so please get in touch with one of our qualified and experienced experts.
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