Directors personal responsibilities

I am a Director of a Company, am I liable for GST, PAYG + other debts owing to the ATO?

Previously Directors were potentially liable for unpaid Pay as You Go (“PAYG”) and Superannuation Guarantee Charges (“SGC”), however on 1 April 2020 the Federal Government passed legislation extending the ATO’s reach to the Director Penalty Regime (“DPR”) to include unpaid GST. Meaning that the ATO can now recover unpaid: PAYG, SGC and GST liabilities from Directors personally. It does not apply to GST liabilities that have accrued prior to 1 April 2020.

Before the recent changes were made, Divs 268 and 269 only applied to Pay as You Go (PAYG) withholding and superannuation guarantee charge (SGC) liabilities.

If you think that by avoiding lodgements you will avoid personal liability you are wrong. There have been amendments to Schedule 1 of the Taxation Administration act 1953 (Cth)(TAA) in two ways, first, it allows the ATO to make a reasonable estimate of an entity’s GST, luxury car tax (“LCT”) and wine equalisation tax (“WET”), (in addition to PAYG and SGC). Making the amount due and payable when the ATO issues the estimated notice. Secondly extensions to Division 269 Schedule 1 of the Act by making directors liable personally for the unpaid GST, LCT and WET. Directors then must specifically ensure the company pays the debt or pay an estimate of the debt by the due date to avoid personal liability.

A director will be liable until the debt is paid, or the Company enters external administration via voluntary administration or liquidation. If by the due date the debt is not paid a director will become personally liable to the ATO. At which time the ATO must issue a Director Penalty Notice (“DPN”) to the Director(s).

PAYG withholding and net GST

The timing of when the PAYG withholding or net GST is notified to the ATO will determine what actions are available to remit director penalties.

If the unpaid amount of PAYG withholding or net GST is reported within three months of the due date (or, in the case of new directors, within three months of the date of their appointment), the penalty can be remitted by one of the following:

• paying the debt
• appointing an administrator under sections 436A, 436B or 436C of the Corporations Act 2001
• appointing a small business restructuring practitioner under section 453B of that Act
• the company begins to be wound up (within the meaning of the Corporations Act 2001).

If the unpaid amount of PAYG withholding or net GST is reported more than three months after the due date (or, in the case of new directors, three months or more after the date of their appointment), the only way to remit the penalty is to pay the debt.

For any portion of the underlying liability that is reported outside of three months or remains unreported, the director’s penalty for that portion can only be remitted by payment.

Remission can be achieved any time prior to a DPN being given; however once it is given, a director only has 21 days from the date of that notice to remit any director penalties stated on that particular DPN.

If the company enters into and maintains a satisfactory arrangement to pay the entire company debt, the ATO will not seek to recover the penalty from a director personally; however, the ATO may offset a director’s personal tax credits. If the entire company debt is no longer under a payment arrangement, the ATO may commence or recommence action to recover the director’s penalty.

 

Summary of key changes

As a result of the Amendments, the Commissioner of Taxation can:

• recover from company directors and collect outstanding GST, LCT and WET liabilities, and estimates of those liabilities;
• refunds due to a taxpayer will be retained if there are other outstanding tax lodgements or information that needs to be provided to the Commissioner and
• collect GST, luxury car tax (“LCT”) and wine equalisation tax (“WET”) liabilities even when they are only estimated.

 

What do I do?

Entities need to ensure they are complying with their GST, LCT and WET lodgements and obligations to avoid the ATO estimating a liability and requiring payment. Importantly PAYG withholding or net GST should be reported within three months of the due date, to avoid making directors personally liable for estimated or assessed liabilities of companies they are Directors of.