Company directors have a legal responsibility to ensure that their company meets its pay as you go (PAYG) withholding and superannuation guarantee charge (SGC) obligations. The director of a company that fails to meet a PAYG withholding or SGC liability by the due date automatically becomes personally liable for a penalty equal to the unpaid amount.
When a PAYG withholding or SGC liability remains outstanding, the ATO may issue a director penalty notice, although this is only necessary to enable the ATO to institute legal proceedings to recover the penalty. Even without issuing a notice, the ATO may collect the penalty by other means, such as withholding a tax refund.
The penalty will be remitted if the company pays the outstanding amount at any time. It will also be remitted if, at any time on or before the 21st day after a director penalty notice is ‘given’ to the director:
- the company is placed into voluntary administration or liquidation
- it had reported its PAYG and SGC liabilities to the ATO within three months of their due dates
Previously, there was no restriction on remission options relating to PAYG liabilities. This changed on 30 June 2012, when the option for remission on the basis of voluntary administration or liquidation was removed for penalties relating to company liabilities that had not been reported within three months of their becoming due.
However, if the company fails to lodge its company returns within three months of the due date, a lockdown penalty notice will be issued. In those circumstances, the only way the director can comply with the notice is by paying the debt.
Newly appointed directors have 30 days before they become liable to penalties equal to:
- all their company’s outstanding PAYG withholding liabilities
- any outstanding SGC liabilities that arose after 30 June 2012
As a new director, you will not be liable to a director penalty if, within the 30 days, the company:
- pays the amount outstanding
- is placed into voluntary administration, or
- is placed into liquidation
There are a number of defences available to directors liable for a director penalty. These include the following:
- because of illness or for some other good reason, you did not take part (and it would have been unreasonable to expect you to take part) in the management of the company
- you took all reasonable steps to ensure that one of the following three things happened:
- o the company paid the amount outstanding
- o an administrator was appointed to the company
- o the directors began winding up the company
- in the case of an unpaid SGC liability, the company treated the Superannuation Guarantee (Administration) Act 1992 as applying in a way that could be reasonably argued was in accordance with the law, and took reasonable care in applying that Act
Strict time limits often apply in these circumstances and it is therefore imperative urgent advice is sort.
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