The obligation on company directors to report and remit Pay As You Go withholding tax has been changed as of June 30, 2012. The Director Penalty Regime has also been changed, allowing it to impose obligations and personal liability on directors when reporting and remitting superannuation guarantee charge liabilities. This legislation has been put in place to protect the entitlements of employees.
PAYG Withholding Tax
Under the old director penalty regime, outstanding PAYG withholding liabilities of the company could be made the personal liability of the director, but the Commissioner of Taxation could not start proceedings immediately. A clause within the regime states that proceedings could not be started until 21 days after they had been issues with a penalty notice.
The director could be discharged from liability in that 21 days by:
- Getting the company to pay the PAYG withholding tax that is due;
- Organising a written payment agreement, or;
- Placing the company into liquidation or voluntary administration.
Under the altered regime, directors can still be discharged through the points listed above, unless the outstanding amount has not been reported or if it is more than three months late. In this case, the amount must be paid in full before the director can be discharged from personal liability.
Payment of PAYG withholding tax is due on the same date it has to lodge its Business Activity Statement and pay the amount shown on the BAS
For instance, imagine the due date for a June quarter BAS is 29 July, This would mean a director’s personal liability, brought on by a penalty notice relating to the June quarter and remained unpaid on October 29, can’t be discharged by causing the company to go into liquidation or voluntary administration. Either the company or the director must pay the amount for the matter to be resolved.
Superannuation Guarantee Charge
A company’s unpaid superannuation contributions are now covered by the Director Penalty Regime.
The Superannuation Guarantee (Administration) Act 1992 states that a superannuation guarantee charge does not have to be paid until:
1) The employer completed and submits a superannuation guarantee statement, or;
2) An assessment is issued by the Commissioner of Taxation.
This system means that if a director does not lodge a superannuation guarantee statement, they may be able to delay payment or avoid it altogether..
Amendments to the superannuation guarantee charge state that contributions are due and payable on the same day the employer lodges the superannuation guarantee statement. This is a month after the superannuation needs to be paid for the relevant quarter. This is the case whether the statement has been lodged or not..
Now, even if a statement has not been lodged, the Commissioner of Taxation is able to send an estimate of unpaid superannuation.
The Commissioner of Taxation has to send a penalty notice to a director with 21 days notice. The same options apply to a director when dealing with a superannuation guarantee charge related penalty notice as a PAYG withholding related penalty notice.
Three months after any amount of superannuation guarantee charge was due, it becomes the personal obligation of the director if it is not paid, even if the company goes into administration or ceases operating..
If this is the case, the only way to release the director’s personal liability is if the company pays the outstanding amount, or for the director to pay it themselves.
The amendments to the regime also enables the Commissioner of Taxation to get the amount due on a penalty notice from an associate of the director, which may be a partner, spouse or child of the partner, or a trustee of a trust where the director is a beneficiary. An associate may able be a company that is sufficiently influenced by the director..
The director can, however, defend themselves. Defences include not having managed the company due to illness, a claim that the director took all the necessary steps to get the company to pay the debt, or having the company placed into liquidation or voluntary administration. These defences may be used to either reduce the claim made by the Commissioner of Taxation, or eliminate it altogether.