The Director Penalty Regime

October 27, 2014

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May 20, 2022

The Increasing Powers of the Australian Tax Office (“ATO”)

The ATO is now utilising these powers to increasingly crack down on directors of companies who are not making ATO lodgements and/or payments by their due dates and it would seem that many directors and some company advisors are still unaware of the severe consequences of these new powers.

You would be aware;

That, for more than 20 years now, the ATO has had the power to make company directors personally liable for the company’s unpaid Pay as you Go (Withholding) taxes (“PAYG (W)”).  The personal liability arises following the ATO issuing the director a ‘director penalty notice’ – which will be equal to the amount of the unpaid primary tax.

That from June 2012, the director penalty regime was expanded.  As well as a company’s PAYG (W), directors can now be held personally liable for the company’s unpaid employee superannuation contributions.  That is a director penalty notice can be issued by the ATO when the company’s Superannuation Guarantee Charge (SGC) has not been paid by the due date.

Avoiding personal liability has also been made harder under the ‘new’ regime.  Up until June 2012, directors who were issued a director penalty notice could have the penalty remitted by appointing a voluntary administrator to the company or putting the company into liquidation.

This may no longer be an option for directors of companies with a poor ATO lodgement history.

Now, if the SGC or PAYG (W) is outstanding and unreported 3 months after its due date, any penalty notice issued by the ATO does not include the option of negating the personal liability by appointing an administrator or liquidator within 21 days of the date of the notice.  This has become known as the “lockdown” director penalty notice where after the only available option to avoid the ATO taking further action against the director (including bankruptcy action) is to pay the ATO the amount specified in the director penalty notice.

How much is the personal liability?

For PAYG (W) liabilities, the director penalty is the amount of the primary tax withheld and unpaid but does not include interest of penalties.

For superannuation contributions, the director penalty is equivalent to the amount of a company’s SGC.

Prepared by Arthur Carney.