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directors personal liability

With the Jobkeeper subsidy having now ended, it is a timely reminder for directors to understand the personal liability they can face for Company tax debts. This should be considered an update from our previous ATO post here.

In April 2020 the ATO added GST to the list of taxation debts for which a director can be held personally liable.

The ATO can also impose a 200% penalty on employers who do not lodge their Superannuation Guarantee Charge statement on time (SGC statement). Given the serious impact these laws can have on the company and the directors’ personal financial position, all directors and advisors should be aware of the following key information:

Immediate Personal Liability for Directors – Lockdown DPN

If a company fails to report PAYG and GST within 3 months from the due date for lodgement, then the director(s) will be held personally liable for the outstanding PAYG and/or GST.

Superannuation

Superannuation must be reported by the due date (within 28 days of the end of each quarter for most companies) otherwise the director(s) held personally liable.

Which director(s) are liable?

Current directors will be liable and new directors will become personally liable for any PAYG, GST and/or Superannuation incurred and unpaid prior to their appointment unless within 30 days starting on the date of their appointment, the company

Pays the debt; or
Appoints a voluntary administrator or enters liquidation

Retiring directors will remain personally liable for any PAYG, GST and/or Superannuation incurred and unpaid before their retirement, even if not due as at the date of their retirement.

Avoiding Personal Liability

Once the deadlines above have expired, the ATO can serve a Director Penalty Notice or DPN on the director(s). The associated personal liability under these lockdown liabilities cannot be avoided by placing the company into administration, restructuring or liquidation. It can only be satisfied by paying the debt – it attaches personally!

2. Potential Personal Liability – Non-Lockdown DPN

Where PAYG, GST and/or Superannuation are reported within the timeframes (set out above) but the associated debt is not paid by the due date, then the ATO can serve a DPN on the director(s). This DPN has the effect of making the director(s) personally liable for the PAYG, GST and/or Superannuation unless within 21 days from the date on which the ATO posts the DPN to the director(s), the company:

Pays the debt;
Appoints a voluntary administrator or enters liquidation

3. 200% Penalty on Employers for late lodgement of Superannuation

Separately to a directors’ personal liability, following the end of the SGC Amnesty in September 2020, if an Employer lodges its Superannuation Guarantee Charge (“SGC”) statement late, the Employer will be liable for a penalty of up to 200% of the SGC. Remember also that SGC liabilities are not tax deductible.

4. Seek professional Advice Early

Jobkeeper has ended – act early. DPNs have serious ramifications for recipient directors, their business, family home and personal relationships. Recipients of DPNs who are unable to pay the amount due should immediately seek advice. This allows time for the recipient to properly understand their financial position and make informed decisions.