From 30 June 2012, the obligations imposed on directors for their company report and remit Pay As You Go (PAYG) withholding tax have been tightened. The Director Penalty Regime has also been amended to impose obligations and personal liability on directors when reporting and remitting superannuation guarantee charge liabilities. This legislation has been enacted to protect the entitlements of employees.
PAYG Withholding Tax
Under the previous director penalty regime, directors could be made personally liable for the outstanding PAYG withholding tax liabilities of the company. The Commissioner of Taxation was not, however, able to commence recovery proceedings against directors immediately. There was a clause that stated the Commission could only begin proceedings against a director 21 days after the date on which the director penalty notice had been issued.
During the 21 day period, the director could be discharged from personal liability in one of three ways:
- By causing the company to pay the outstanding PAYG withholding tax
- By organising a written agreement to pay, or
- By placing the company into liquidation or voluntary administration.
Under the amended director penalty regime, directors can still discharge personal liability through the means outlined above except in circumstances where the amounts owing have not been reported, and are more than three months late. These amounts must be paid in full to discharge any personal liability.
The due date in relation to PAYG withholding tax is the date on which the company is required to lodge its Business Activity Statement (BAS) and pay the amount detailed in the BAS.
For example, the due date for a June quarter BAS is 28 July. Therefore, any personal liability of a director, as a result of a penalty notice, which relates to the June quarter and remains unpaid after 28 October – more than 3 months after the due date – cannot be discharged by placing the company into voluntary administration or liquidation. The amount must be paid either by the company or the director personally.
Superannuation Guarantee Charge
The Director penalty regime has now also been extended to cover a company’s unpaid superannuation contributions.
Under the Superannuation Guarantee (Administration) Act 1992 (Cwlth), the superannuation guarantee charge is not due and payable until:
- The employer conducts a self-assessment to complete and submit a superannuation guarantee statement, or
- The Commissioner of Taxation issues an assessment.
With this system, if a director fails to lodge a superannuation guarantee statement, they can delay, or even avoid payment.
New amendments to the superannuation guarantee charge mean contributions are due and payable on the day the superannuation guarantee statement is lodged by the employer (28 days after the superannuation must be paid for the relevant quarter) whether the statement has actually been lodged or not.
The Commissioner of Taxation is now able to issue an estimate of unpaid superannuation even where no statement has been lodged.
As mentioned above, the Commissioner of Taxation is required to issue a penalty notice to a director allowing notice of 21 days. Directors have the same options when dealing with a superannuation guarantee charge related penalty notice as they have with a PAYG withholding related penalty notice.
Any amount of superannuation guarantee charge which remains unreported and unremitted, three months after the debt was due and payable becomes a personal obligation of the director even if the company is placed into administration or wound up.
In these circumstances, the only way to eliminate the director’s personal liability is to have the company pay the outstanding amount, or for the director to pay it themself.
The amendments also enable the Commissioner of Taxation to recover amounts due as a result of a penalty notice from an associate of the director. Pursuant to the Income Tax Assessment Act 1936 (Cwlth), an associate of a natural person is defined to include a relative, a partner, a spouse or child of the partner, a trustee of a trust where the director (or an associate) is a beneficiary, or a company which is sufficiently influenced by (or a majority voting interest is held by) the director (or an associate).
Statutory defences are available to directors. These defences include not being involved in the management of the company due to illness, or that the directors took all reasonable steps to have the company pay its debt, or have the company placed into voluntary administration or liquidation. If these defences are established, they may be relied upon to eliminate or reduce the claim made by the Commissioner of Taxation in relation to a director penalty notice.
For further information about these amendments talk to your Chartered Accountant.