Director’s Penalty Regime

Changes to the Director’s Penalty Regime, effective from 30 June 2012, extended a director’s liability where a company fails to pay superannuation guarantee charges (“SGC”) and pay as you go (“PAYG”) withholding amounts. These provisions are enumerated in Division 269 Schedule 1 of the Taxation Administration Act 1953 (Cth) (“the Act”).

If a company fails to pay a SGC or PAYG withholding amount, the directors of a company are personally liable to a penalty equal to the company’s liability under its obligation.

New directors can be caught by this provision too. If after 30 days of the new director’s appointment the company is still liable to pay the unpaid payments, that director will be liable for a penalty equal to the company’s liability under its obligation at the end of those 30 days.

The obligation of directors of the company ends when:

  1. The company complies with its obligation;
  2. An administrator is appointed under s 436A, 436B or 436C of the Corporations Act 2001 (Cth); and
  3. The company begins to be wound up (within the meaning of the Corporations Act 2001 (Cth).

This means that even if the director resigns from the company while the company has not yet complied with its obligation to pay the unpaid SGC and PAYG withholding amounts, that director will still be liable under the Director’s Penalty Regime.

Even if an administrator is appointed or the company begins to be wound up, a director can still be liable if unpaid PAYG are not reported to the Commissioner by 3 months after the due date.

Exceptions apply, for example, if illness or some other good reason prevented the director from taking part with the operations of the company at that time, or the director took all reasonable steps to ensure that the company complied with its obligation, appointed an administrator under the relevant sections of the Corporations Act 2001 (Cth) or began the winding up process (within the meaning of the Corporations Act 2001 (Cth).

Leading accountants are signaling that the ATO is taking a stricter and a more pro-active approach to cracking down on directors liable under the Director’s Penalty Regime. Directors will need to be aware of their company’s obligations to pay a SGC or PAYG withholding amounts. We note that in certain cases a company can be liable for SGC and PAYG payments to Independent Contractors and Consultants.

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