In an earlier post we raised the possibility of changes to the law concerning Director Penalty Notices. The Treasury released its exposure draft of the proposed legislation for public consultation late yesterday. The object of the legislation is to address fraudulent phoenix activity by making company directors personally liable for PAYG tax debts and the superannuation guarantee charge.
The key changes proposed by the draft will affect company directors in a number of ways. Firstly, the Commissioner of Taxation will be able to make an estimate of the amount payable by a company in respect of PAYG tax and the superannuation guarantee charge. Secondly, the legislation contemplates that directors will be held personally liable for the superannuation guarantee charge as well as unpaid PAYG.
The major alteration to the law that is proposed by the exposure draft is that a director’s liability for unpaid PAYG and superannuation guarantee charge will arise automatically. The current law requires the ATO to serve a penalty notice on a director and the director becomes liable at the expiration of 21 days. The new law proposes that:
1. if the tax or superannuation debt is less than 3 months old, the Commissioner must comply with the current 21 day notice regime; and,
2. if the tax or superannuation debt is more than 3 months old, the director is personally liable and the ATO can commence proceedings to recover the funds without notice.
Under the current regime, if a director pays the debt, appoints an administrator to the company or the company commences winding up within 21 days of the ATO posting a director penalty notice, the personal liability of the director is extinguished. If the proposed law is passed and the tax debt is more than 3 months old, the only way a director’s personal liability can be extinguished is by payment of the full amount claimed by the ATO.
The proposed Act also contemplates giving the Commissioner of Taxation discretion to reduce a director’s entitlement to PAYG withholding credits along with those of their associates. That is to say, if a company withheld PAYG tax from the wages of directors and their associates but failed to pay that PAYG withholding amount to the ATO, any credit claimed by the directors or their associates in their individual tax returns in respect of the PAYG amount will be reduced and give rise to an increased individual tax bill.
If you are concerned about phoenix activity or if you have received a Director Penalty Notice from the ATO, you need urgent expert insolvency advice. Go to our contact page, send us an email or submit an enquiry using the form on the right side of your screen. Our professional staff are waiting to help you with your insolvency law needs.
