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: –
- 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
- “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: –
- pay by the relevant due dates, the required amounts of PAYG Tax to the ATO;
- 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;
- pay by the relevant due dates, superannuation contributions for its employees; or
- 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: –
- the company lodges its BAS within three (3) months of the relevant due dates and SGC Statements when due; but
- 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: –
- the PAYG tax, and superannuation is paid in full; or
- 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: –
- a company does not pay PAYG Tax and superannuation to the ATO by the due dates; and
- 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: –
- garnishee notices;
- offsetting any of your tax credits against the director penalties;
- 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: –
- pays their PAYG withholding and/or SGC debt in full;
- appoints an administrator under section 436A, 436B or 436C of the Corporations Act 2001; and
- 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: –
- 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;
- they took all reasonable steps to meet its obligations to pay PAYG Tax or superannuation;
- they took all reasonable steps, where relevant, to wind the company up or appoint a voluntary administrator to the company; and
- 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 firstname.lastname@example.org.