02 Dec ATO Enforces Director Personal Liability
At my practice we have seen an increase in the number of Director Penalty Notices (DPNs) being issued for unpaid PAYG tax and superannuation debts due to new laws, which came into effect last July.
If you are a director you are automatically personally liable for PAYG and staff superannuation contribution liabilities that are unpaid and unreported for three months. The personal liability accrues irrespective of the ATO issuing a DPN. The DPN now crystallises the date the personal liability is to be paid. Personal liability cannot be avoided if the unpaid liability was unreported for three months.
In this situation directors will be unable to avoid personal liability under the director penalty notice by placing the company into voluntary administration or having it wound up.
Directors of companies with tax arrears need to take prompt action to avoid or mitigate personal liability. At my practice I advise clients to take the following urgent steps;
Report on time
Even if the debts can’t be paid, it is prudent to lodge BAS returns and pay staff Superannuation Guarantee payments on time. This will give the director options and rights to avoid personal liability.
Consider a payment plan
The ATO is usually receptive to realistic payment plans. The payment of these debts promptly, even from personal finance, may now be a better option under the new laws. Directors may be able to obtain finance cheaper than the interest and penalties enforceable by the ATO for late payments.
Use the ATO’s business viability assessment tool
The ATO uses this tool Viability Assessment Tool to assess the credibility of a payment plan proposal. It may assist you to assess your position prior to submitting a proposal to the ATO.
Reconsider the priority of how you pay your creditors
I strongly recommend that you pay your PAYG and superannuation guarantee debts paid as promptly as possible.
What if I am appointed a director of an existing company
If you are considering becoming a director of an existing company I strongly recommend that you undertake a due diligence of the PAYG and superannuation liability position of the company. It is possible new directors will be deemed liable for debts incurred before their appointment after only 30 days. If you are unsure about this, contact an experienced professional such as a taxation adviser, who will be able to assist you.