Directors Penalty Notices

Directors Penalty Notices

The director’s penalty notice regime operates to make directors of companies personally liable for certain tax debts of the company.

The regime has been significantly amended as of 29 June 2012 to extend the liability of company directors to certain company tax debts.

The director’s penalty notice regime now applies for Superannuation Guarantee Charge (SGC) as well as PAYG Withholding (PAYGW).  The changes made include the following:

• Directors are now automatically liable for company PAYGW and SGC debts.
• The ATO can now send the directors penalty notice to the director OR their tax agent (previously the notice had to be sent to the director only).
• Debts which are greater than 3 months old now have no remedial action other than payment of the debt in full to the ATO.  Placing a company into administration or liquidation will not be effective in releasing the director from the penalty notice issued.

It is important that all directors of companies (including companies that operate as a trustee of a trading trust) make note of the following:

• Former company directors are liable for debts that arose when they were directors.
• Current directors are liable for all debts.
• New directors have a 30 day period after becoming directors to assess the company’s debt liability before they become liable. After the 30 days has expired the new director becomes liable for all company debt.
• Directors can have PAYG withholding non-compliance tax levied against them which cancels their PAYG credits declared in their personal tax returns.  Certain associates of directors can also be liable for PAYG withholding non-compliance tax.
• The amount of liability can be estimated by the Commissioner of Taxation & an assessment issued on the basis of the amount estimated.  The ATO estimate could be higher than your actual liability and it can be very difficult to have an assessment based on an estimate reversed.

What you need to do:

• Ensure you allocate payments made to the ATO to PAYG debts first before GST debts
• Review superannuation payments and ensure they are made on time
• Review PAYGW payments made for directors
• Ensure you are aware of what you owe to the ATO
• Ensure Activity Statements are lodged on or before their due date to prevent the ATO estimating your liability.

As a result of the changes, it is imperative that directors are regularly reviewing their company’s PAYGW and SGC debts.  This should be done at least quarterly.  If you have any questions in relation to these changes please contact your IPS advisor.