On 29 June 2012 the Tax Laws Amendment (2012 Measures No. 2) Act 2012 received royal assent. The legislation has been introduced to expand the director penalty regime; making directors now personally liable for their company’s unpaid superannuation guarantee amounts in addition to unpaid Pay As You Go (“PAYG”) withholding tax obligations. In addition, the legislation removes the ability for directors to discharge their director penalties by placing their company into administration or liquidation where unpaid PAYG withholding or superannuation guarantee amounts remain unpaid and unreported three months after their due date.
Under the former director penalty regime, directors were personally liable for their company’s unpaid PAYG withholding amounts. However before commencing proceedings to recover that liability, the Commissioner of Taxation (“the Commissioner”) was required to first issue a director penalty notice. Only after 21 days had passed from the issuing of that notice could the Commissioner commence proceedings against the director for the recovery of the liability. This gave directors the opportunity to have the liability remitted if, within 21 days of receiving a director penalty notice (or before receiving the notice), any of the following things happened:
- The company complied with its obligation
- An administrator of the company was appointed or
- The company began to be wound up.
From 29 June 2012, directors will now be personally liable for their company’s unpaid superannuation guarantee amounts in addition to unpaid PAYG withholding tax obligations. Importantly though, the ability of a company director to have that liability remitted by placing the company into administration or beginning to wind it up has been removed, where three months have lapsed after the due day for the company liability and the liability remains unpaid and unreported.
Whilst a director can defend a claim by the Commissioner for the recovery of a director penalty, those defences are limited. In the ordinary course, a director would need to demonstrate that he or she had an illness that prevented them from participating in the management of the business or that they had taken all reasonable steps to ensure compliance. For newly appointed directors, they will have three months from the date of their appointment before the restricted remission provisions apply.
For existing directors, these amendments make it crucial for them to ensure that their company’s PAYG and superannuation obligations are reported to the Commissioner within 3 months of the due day. Even if the disclosed debt is not remitted by the due date, by reporting these obligations to the Commissioner, directors will still be able to have their liability remitted by placing their company in administration or commencing a winding up within 21 days of receiving a director penalty notice. For new directors, it is crucial that they satisfy themselves the company has complied with its PAYG and superannuation guarantee reporting obligations within three months of commencing their directorship.