Director penalty regime – guide for directors
Under the pay as you go (PAYG) withholding system, the Income Tax Assessment Act 1997 (ITAA) requires companies to withhold money from wages to meet employees’ tax liabilities to the Australian Taxation Office (ATO). Companies are also required to pay a superannuation guarantee charge (SGC) under the Superannuation Guarantee (Administration) Act 1992 (SGA Act). Company directors are legally responsible for ensuring that their company meets its PAYG withholding and SGC obligations. If a company fails to comply with their obligations under the PAYG withholding system or the SGC provisions, company directors can be held personally liable for the amount the company should have paid.
The laws governing the director penalty notice regime were strengthened significantly in June 2012. The net result is that it is now easier for directors to be held personally liable for these debts.
Under certain circumstances, the ATO can force directors of a company that is unwilling or unable to meet these obligations, to personally pay those debts. This is achieved with the issuance of a director penalty notice, for an amount equal to these amounts.
A director becomes liable to a penalty at the end of the day the company is due to meet its obligation. At this time, the penalty is created automatically. The ATO does not need to issue any notices or take any action to create the penalty, The Commissioner, however, must not commence proceedings to recover a director penalty until 21 days after a DPN is issued to a director.
Did you know as a director:-
- You will be personally liable for unpaid PAYG withholding or SGC amounts?
- You need to avoid incurring director penalty liabilities by ensuring the company is lodging and paying on time?
- Even if you are no longer a director of a company, or are a newly-appointed director, a director penalty may still apply to you?
- The ATO are likely to issue a director penalty notice to collect company debts where the company hasn’t engaged with us to resolve outstanding obligations?
- If a penalty has been incurred by the ATO, there are certain actions you must take to have the penalty remitted?
- Payment is the only option to remit the penalty if the associated company liability was not reported within three months of the due date?
- You need to ensure your address details are up to date with us and the Australian Securities and Investment Commission (ASIC)?
You will need to contact us immediately if you have received a director penalty notice. We can help liase with the ATO with your specific circumstances.