If you are a director of a company, or you are intending to become a director of a company, then you should be aware that recent legislative changes have imposed further PAYG liabilities and superannuation contribution obligations upon directors of companies, says Partner TERRY MORGAN.
Recent legislative changes have altered the landscape in relation to the liabilities imposed on company directors in respect of PAYG deductions. One of the more significant changes is that the personal liability of directors has now been increased to include, not only PAYG installments, but also Employee Superannuation Contributions. Previously the liability extended only to PAYG instalments.
It is crucial for directors or persons who are considering becoming directors of companies to acquaint themselves with:
- Their responsibilities as directors; and
- The liabilities that can be encountered as a result of being a director of a company.
The first thing you need to know
All directors or intending directors of companies should visit the Australian Securities and Investments Commission (ASIC) website www.asic.gov.au under “Companies – running” to acquaint or re-acquaint themselves with their responsibilities as directors of companies.
In addition to the responsibilities referred to at this website, the income Tax Assessment Acts have, for some time, imposed obligations on directors of companies to ensure that PAYG instalments deducted from employees’ wages are remitted to the Australian Taxation Office (ATO).
The measures contained in the Income Tax Acts included the imposition of a personal liability upon directors for unpaid PAYG instalments. However, prior to the ATO commencing proceedings to recover any such unpaid PAYG installments from a director, certain steps have to be taken by the Commissioner for Taxation.
What the liability used to be
Prior to the amendments, the Income Tax Acts enabled a director to avoid liability for PAYG instalments if, within a specified period after receiving a notice from the ATO, the director caused the company to either:
1. Pay the amount due;
2. Enter into a written agreement with the ATO to pay the amount by instalments; or
3. Cause the company to be placed into external administration by:
a. Appointing an Administrator; or
b. Causing the company to be placed into liquidation.
What the liability is now
The recent amendments mean that:
- Where the unpaid PAYG instalments or unpaid superannuation guarantee instalments have not been paid by the company; and
- The liability for such payments has not been reported to the ATO within three (3) months after such amounts became payable then the liability of the director for any such PAYG instalments or superannuation instalments cannot be avoided.
The ATO is still required to issue a notice to directors prior to the commencement of any proceedings to recover the unpaid PAYG liability or unpaid employee superannuation guarantee liability.
The notice issued by the ATO allows the director twenty one (21) days in which to either:
- Pay the outstanding liability;
- Appoint an administrator to the company; or
- Place in the company in liquidation.
Such steps will, in relation to reported liabilities for PAYG or superannuation contributions, relieve the director from personal liability.
If the liability of the company for PAYG or superannuation guarantee charge is not reported to the Australian Taxation Office within three (3) months of its due date then the director will not be able to avoid liability by taking any of the three steps set out above.
It is of the utmost importance to ensure that the company of which you are a director, lodges any reports or liability for PAYG and/or superannuation contributions with the ATO within the prescribed timetable.
A director has thirty (30) days from the date of his/her appointment to ascertain whether the company has any outstanding PAYG or superannuation contribution liabilities.
If there are outstanding liabilities, that director must resign within thirty (30) days from the date of his/her appointment to protect himself/herself from liability.
But wait, there’s more . . .
As a further penalty, a person who is a director of a company which has failed to account to the ATO for its PAYG liability or superannuation guarantee charge liability, will not be able to claim any tax benefit for any PAYG which should have been paid by the company in relation to any salary paid to the director concerned, or any associates of that director.
