Day: 20 August 2019

Director Penalty Notices

If a company does not meet its PAYG tax or super guarantee charge (SGC) obligations, the ATO may issue a director penalty notice to a company’s directors to recover these amounts from a company’s directors personally.

There are two types of director penalty notices that can be issued by the ATO: –

1. A 21-Day director penalty notice – this applies where PAYG Tax and / or Superannuation payable by a company remains unpaid, but the company has lodged its returns within relevant periods; and
2. “Lockdown” director penalty notice – this applies where PAYG Tax, and / or Superannuation payable by a company remains unpaid and the company has failed to lodge its returns within the relevant periods.

A company must: –

1. pay by the relevant due dates, the required amounts of PAYG Tax to the ATO;
2. lodge Business Activity Statements (“BAS”) with the ATO each quarter (or lodge monthly Instalment Activity Statements) reporting the amount of PAYG Tax and GST payable to the ATO;
3. pay by the relevant due dates, superannuation contributions for its employees; or
4. if the company fails to pay superannuation contributions by due dates, lodge a SGC Statement with the ATO.

21 Day Director Penalty Notice

The ATO may issue a 21 day director penalty notice to the company’s directors in circumstances where: –

1. the company lodges its BAS within three (3) months of the relevant due dates and SGC Statements when due; but
2. fails to pay PAYG Tax and superannuation to the ATO by the due dates.

If the company’s directors receive a 21-day director penalty notice from the ATO, they will become personally liable for a company’s unpaid PAYG tax, and superannuation, unless one of the following occurs within 21 days of the date of the director penalty notice: –

1. the PAYG tax, and superannuation is paid in full; or
2. the company is placed in liquidation or voluntary administration.

Lockdown Director Penalty Notice

The ATO may issue the company’s directors a lockdown director penalty notice in circumstances where: –

1. a company does not pay PAYG Tax and superannuation to the ATO by the due dates; and
2. fails to lodge its BAS within 3 months of them being due or lodge its SGC Statements by the SGC Statement due dates with the ATO.

In the above circumstances, a company’s directors will become automatically personally liable to the ATO for unpaid PAYG Tax and superannuation.

Importantly, the company’s directors will not be able to escape personal liability by placing the company in liquidation or voluntary administration.  In fact, the ATO may issue a director penalty notice after a company is already in liquidation or voluntary administration.

Director’s liability under a director penalty notice

If you become liable under a director penalty notice, then the ATO will treat the amount as owing by you personally. Recovery options available to the ATO include: –

1. garnishee notices;
2. offsetting any of your tax credits against the director penalties;
3. initiating legal recovery proceedings against you to recover the director penalty.

How does this affect former and new directors?

The ATO is able to issue a director penalty notice to a director who has resigned but was a director at the time when unpaid PAYG Tax or superannuation was incurred.

The ATO is also able to issue a director penalty notice to an incoming new director after the director has been in office for more than 30 days.

However, as a new director, you will not be liable to director penalties for amounts due before your appointment if, within 30 days starting on the date of your appointment, the company does one of the following: –

1. pays their PAYG withholding and/or SGC debt in full;
2. appoints an administrator under section 436A, 436B or 436C of the Corporations Act 2001; and
3. begins to be wound up (within the meaning of the Corporations Act 2001).

Even if you become a new director and you resign within the 30 day period, you will still be liable for the unpaid PAYG withholding and SGC liabilities of the company that were due before your appointment.

Are there any defences to a claim by the ATO under a director penalty notice?

The following (if established) may be raised in defence to a claim by the ATO under a director penalty notice: –

1. the director was not managing the company at the time the debt which gave rise to the director penalty notice was incurred as a result of illness or another acceptable reason;
2. they took all reasonable steps to meet its obligations to pay PAYG Tax or superannuation;
3. they took all reasonable steps, where relevant, to wind the company up or appoint a voluntary administrator to the company; and
4. they took reasonable steps to ensure that the company complied with its obligations to pay superannuation.

In July 2019, the Federal Government introduced the Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019 to seek to introduce GST Director Penalty Notices.  The legislation amends director penalty provisions so that Director Penalty Notices can be issued for unpaid GST, as well as Luxury Car Tax and Wine Equalisation Tax. These changes were due to commence on 1 April 2020.

In light of the risk of personal liability brought about by the director penalty notices regime, Directors and their advisors should obtain appropriate advice and assistance if faced with circumstances outlined above.

If you or someone you know would like more information or some advice about whether these matters affect you, please contact us on (07) 5458 6855 or email mklein@kleinlegal.com.au.

What is a family provision application?

The Succession Act 1981 (Qld) (the ‘Act’) entitles eligible persons to make an application to the Court seeking provision or adequate provision from the deceased person’s estate.  This is commonly called a family provision application.

Who is an eligible person?

Pursuant to the Act, only ‘eligible’ persons can bring a family provision application against a deceased estate.  An eligible person includes a spouse, child or dependant of a deceased person.

A spouse includes a husband or wife, de facto partner, a civil partner and dependent former husband or wife or civil partner.

A child includes natural children, stepchildren and adopted children.

A dependant means a person who was being wholly or substantially maintained or supported by the deceased at the time of his or her death and who is: –

1. a parent of the deceased; or
2. the parent of a surviving child under the age of 18 years of that deceased person; or
3. a person under the age of 18 years.

Can assets I dispose of in my lifetime be subject of a family provision application?

Some people will dispose of their assets in their lifetime having the effect of defeating a family provision application by an eligible person against their estate when they pass.

In New South Wales, Part 3.3 of the Succession Act 2006 (NSW) provides powers to a Court in certain circumstances when dealing with a family provision application against a deceased estate to take into account assets that are no longer (or never were) owned by the deceased person and make orders affecting the parties holding those assets or in respect of the proceeds of sale of those assets.   These Orders are referred to as “notional estate orders” and their purpose is to prevent actions or omissions by a person during their lifetime from having the effect of defeating a family provision application by an eligible person to a claim against their estate when they pass.

However, in Queensland, there is no such corresponding legislation permitting the Court to make Orders affecting assets properly disposed of by a person in their lifetime when determining a family provision application made by an eligible person against a deceased estate.

The Ademption Rule

Ademption occurs where the gift of a specific item of property in a will fails because prior to the testator’s death, the property is sold or otherwise disposed of. An example of this is when real property is gifted to a beneficiary in the will but is subsequently sold during the will maker’s lifetime to fund for example, a permanent aged care facility and the testator does not update their will to reflect the changed circumstances. The gift of the property is said to be ‘adeemed’ because the gift no longer forms part of the testator’s estate. The rule of ademption may significantly distort the testator’s intention and/or result in unjust outcomes.

Unlike NSW, in Queensland the law did not provide for specific exceptions to the ‘ademption’ rule.  However, the Guardianship and Administration and other Legislation Amendment Bill 2018 (Qld) has introduced changes to the Guardianship and Administration Act 2000 (Qld) and the Powers of Attorney Act 1998 (Qld) to create a statutory exception to ademption in circumstances where the gift has been addeemed by the actions of an attorney or administrator and not by the testator themselves as a result of for example, their lack of capacity.

The commencement date of the legislation is subject to proclamation and will mean that when an attorney under an enduring power of attorney or an administrator deals with the testator’s property that is a gift under a will, the beneficiary is entitled to the same interest in any surplus money or other property arising from the sale or other dealing with the property. This will give effect to the testator’s intentions before he or she lost capacity.

The Courts have also considered exceptions to the ‘ademption’ rule in circumstances where a beneficiary suffers an unjust disadvantage not contemplated in the will.  For example, the Court may intervene where there has been fraud.  When considering whether an exception of the ‘ademption’ rule should be applied, the Court may consider the will maker’s knowledge and intention about the disposal of an item or property in their lifetime. Ultimately, whether an exception to the ‘ademption’ rule applies will depend on the circumstances of each case.

If you or someone you know would like more information or some advice about whether these matters affect you, please contact us on (07) 5458 6855 or email mklein@kleinlegal.com.au.