Directors are starting to see why the ATO introduced Single Touch Payroll. This data has enabled the ATO to identify businesses, who are not complying with their responsibilities for Superannuation Guarantee (SGC) and PAYG withholding tax obligations. With the recent introduction of new legislation, the ATO will be allowed to collect estimates of anticipated GST liabilities and make company directors personally liable for the company’s GST liability, in addition to the existing exposure to PAYG and SGC liabilities.
This is potentially a big exposure for company directors and arguably more dangerous than their PAYG and SGC liabilities, as in many instances, companies are more likely to have GST liabilities in arrears than PAYG and SGC debts.
A Director Penalty Notice (DPN) can be issued by the ATO, making a director personally liable for certain debts of the company. This will have implications for all companies, but will have significant impact on a director of a “financially troubled” company.
What about new Directors?
If a company has an outstanding tax liability, the new director can become personally responsible for a penalty equal to that amount, unless within 30 days of their appointment, the company pays its outstanding debt, appoints an administrator, or begins to wind up the company. Even if the director resigns within the 30 day period, they will remain responsible for the debt due before their appointment. Resigning as a director does not prevent a DPN being issued, irrespective of whether you are a new or existing director.
How will the ATO collect it?
Apart from directly from the director. The ATO has the power to issue a garnishee notice to a third party, which will require them to pay that amount directly to the ATO, where the third party owes money to the director or the company. The ATO can also issue a garnishee notice to the bank where the director has an account.
How can I protect myself?
- Concentrate on your due diligence…check to make sure that all PAYG, SGC and GST liabilities are up to date.
- Ensure that all reporting is completed on time…if not, a DPN can’t be avoided.
- Ensure that your correct details are in the ASIC register…no defence is available for non-receipt of a DPN, if the register is not correct.
- Understand that these exposures exist, even if you are not a validly appointed director, but a defacto director or shadow director.
What other issues do I face?
In many instances, directors have no choice, but to provide personal guarantees to obtain credit from financiers, suppliers or to arrange tenancy leases. These guarantees are often provided over a long period of time and we find many directors have no record of what they have guaranteed. If you are an existing director resigning from the company, you should ensure that you are released from any personal guarantees, which you have provided for the obligations of the company.