What is a Director Penalty Regime?
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 meet 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.
A Director Penalty Regime is set by the ATO. The regime applies to:
- unpaid PAYG withholding amounts
- unpaid SGC obligations applicable from and including 30 June 2012 (ie the June 2012 or later quarters).
The objective of the director penalty regime is to ensure that directors make the company comply with certain taxation and superannuation obligations. All directors have a legal responsibility to ensure the company meets its PAYG withholding and SGC obligations. These measures were introduced by the ATO to ensure directors of companies take appropriate and prompt action with respect to employee entitlements.
If you are a company director and the company has outstanding PAYG withholding and SGC obligations, you will become personally liable for a penalty equal to these amounts.
The directors of a company that fail to meet a PAYG withholding or SGC liability in full by the due date each become personally liable for a penalty equal to the unpaid amount. These penalties are reduced by any amounts paid towards the original liability and are sometimes referred to as parallel liabilities.
Give us a call to discuss your circumstances on 1300 788 491 or to clarify any penalties that may apply to you.