Under the ATO Director Penalty Regime directors have a legal responsibility to ensure that the company meets its PAYG withholding and superannuation guarantee charge obligations.
The directors of a company that fail to meet a PAYG withholding or SGC liability in full by the due date each become personally liable for a penalty equal to the unpaid amount. These penalties are reduced by any amounts paid toward the original liability.
To recover a director penalty from a director, the ATO will issue a director penalty notice (DPN) to each individual director’s residential address as listed with ASIC. The ATO will then wait 21 days before commencing proceedings.
For unpaid amounts that were reported within three months of the due date (i.e. the Business Activity Statements were lodged with the ATO within three months of their due date), then a director receiving a DPN will only have 21 days to:
- Pay the debt
- Appoint an administrator under section 436A, 436B or 436C of the Corporations Act 2001
- Appoint a liquidator to windup the company
For unpaid amounts that were not reported within three months of the due date, then a director receiving a DPN will only have 21 days to pay the debt in full. This highlights the fact that it’s essential that directors ensure Business Activity Statements are lodged on-time, even if the tax liabilities cannot be paid in full at that time.
New directors of a company need to be aware that under the director penalty regime after they have been a director for 30 days they are also liable for unpaid liabilities of the company which were due prior to their date of appointment.
If a company cannot meet its PAYG withholding or SGC liabilities then the directors need to consider whether the company has a future and can continue in business. There is really no point if the company is making losses and cannot cover the costs of being in business. Too many directors blindly struggle on for another 6-12 months and create bigger losses for everyone (themselves, ATO, creditors, and employees).