Directors and their associates to be personally liable for SGC and PAYG obligations

On 13 October 2011, the Federal Government introduced new tax legislation into Parliament.

The Proposed legislation increases directors’ personal liabilities for non-compliance with Pay As You Go (PAYG) withholding tax and Superannuation Guarantee Charge (SGC) contributions and also increases the Australian Tax Office’s (ATO) powers.  The new law is aimed at protecting employees against phoenix company activity.  It is important to note that fraud or dishonesty of the companies, directors, or associates is not an element, therefore inadvertent errors and/or mischaracterisations of payments are included.

The proposed changes

Under the Tax Laws Amendment (2011 Measures No. 8 ) Bill 2011 (Bill), the SGC contributions and PAYG withholding tax liability of a company will:

• make directors personally liable for unpaid SGC contributions and for unremitted PAYG withholding tax;
• continue to follow the directors even after their resignation, liquidation of the company, or establishing a new  entity;
• assign to any subsequent directors who become a director within fourteen (14) days after the due date of the SGC or PAYG; and
• potentially personally expose liability to family members and other associates of the directors.

The Bill gives the ATO additional recovery powers which include:

• the ability to commence action which could include third party garnishee orders, commencing debt recovery proceedings or commencement of bankruptcy proceedings, without issuing a director’s penalty notice (DPN) or any other notice, where a company fails to comply with its SGC liability or PAYG obligations or is unpaid for more than three (3) months after the due date; and
• where the company omits to pay SGC or PAYG withheld amounts, directors and their associates could have their own PAYG withholding credits denied.

A common mistake is misidentifying employees as contractors.  Therefore, the company should review their SGC and PAYG compliance procedures and policies to ensure they are comprehensive and adequate.

Further information

Dundas Lawyers assists with directors duties.  To ascertain how Dundas Lawyers can assist you, contact us for a confidential and obligation-free discussion:

Disclaimer

This article contains general commentary only.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.

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