An exposure draft of new legislation has been released which will expand on the current director penalties to protect worker’s entitlements to superannuation, and to strengthen director obligations.
The main features of the Bill are to:
- extend the director penalty regime to make director’s personally liable for their company’s unpaid superannuation guarantee amounts;
- ensuring that directors cannot discharge their director penalties by placing their company into administration or liquidation when unpaid PAYG withholding or superannuation guarantee remains unpaid three months after its due date; and
- in some instances, reducing directors entitlement to credit for PAYG withholding where the company has failed to pay amounts withheld to the ATO.
In addition, if a new director fails to arrange the company to take any action 30 days after they became a director, they will be liable for company debts that existed when they became a director. This places more obligation on directors to sort out a company’s unpaid debts and obligations within shorter time frames or face personal responsibility for paying worker’s entitlements.
I am currently a company director – what do I need to know?
If you are currently a company director, then the key actions that need to be taken are:
- Work out what amounts of PAYG withholding and superannuation guarantee remain owing by the company
- Work out how long after the due date these debts have remain unpaid
- If debts are more than 3 months past their due date, those debts need to be paid immediately.
Once a director penalty notice is issued, if the debt (PAYG or superannuation) is more than 3 months overdue then the action that can be taken is either:
- paying the penalty; or
- make the company extinguish that liability and pay the overdue amounts
If the debt is not 3 months overdue, further action can be taken to either:
- appoint an administrator of the company; or
- begin to have the company wound up.
Proceedings cannot be taken on a director’s penalty notice until 21 days after the issue of the notice, so there is time allowed in order for the directors or the company to rectify the situation.
I am about to become a company director – what do I need to know?
If you are about to become a director of a company, or have only recently become a director of a company, there is additional time allowed to allow a chance to identify and rectify any overdue debts.
If an overdue debt exists when the director started, they will be liable for the director penalty if the company or the directors have not discharged their obligation within 30 days from their start date.
In addition, a new director will have access to the ability to appoint an administrator or begin to wind the company up within 3 months of their start date as a director of the company.
Other courses of action if a notice is issued
In addition to the above, there are a number of defences available to company directors where a director penalty notice has been issued. Examples of defences include:
- illness or some other good reason caused the director to not be involved in the management of the company and it was reasonable for the director to not be involved;
- the director took all reasonable steps (or no such steps were available) to ensure the directors caused either 1) the company to meets its obligation to pay; 2) an administrator of the company to be appointed; or 3) the company to begin to be wound up;
- the director can establish that they took reasonable care and had a reasonably arguable position that superannuation guarantee did not apply to their situation where the director penalty notice seeks to apply superannuation guarantee.
Best course of action a director can take
The best course of action that company directors can take is to understand their tax obligations, understand their company’s current position, and then ensure that all obligations are brought up to date and kept up to date.
If either PAYG withholding or superannuation remains unpaid, then these unpaid debts should be sorted out as quickly as possible, and particularly within 3 months of their due date.
The bottom line….
If you are a director and you make sure that your company is run effectively and meets all it tax obligations, these changes will not be of any concern to you.