Directors Personally Responsible for Superannuation Guarantee Payments - Further Obligations on the Way
Simon Della Marta, Partner
12 September 2011
Until now only unpaid PAYG employee obligations for companies have been subject to the Director Penalty Notice regime making company directors personally liable for these obligations. The Federal Government has released exposure draft legislation so that this personal obligation would extend to unpaid superannuation guarantee amounts.
At the moment the Commissioner for Taxation can issue a Director Penalty Notice and may recover the unpaid amount of PAYG employee obligations from a director personally unless, within 21 days of the notice the company:
• Pays the debt
• Appoints an administrator
• Begins the winding-up of the company
The exposure draft legislation (entitled “Companies’ Non-Compliance with PAYG Withholding and Superannuation Guarantee Obligations”) proposes to add unpaid superannuation guarantee payments to make company directors also personally liable for those unpaid amounts.
It is also proposed that the personal obligations on directors for PAYG withholding and superannuation guarantee amounts will automatically apply once the company’s unreported obligations remain unpaid and unreported 3 months after the due date.
The Director Penalty Regime was originally introduced in 1993 to ensure that directors caused the company to meet its PAYG withholding tax obligations or it would promptly put the company in liquidation or voluntary administration. In the May 2011 budget, the government announced it was putting measures in place to “strengthen the tax law to counter fraudulent phoenix activity”. Phoenix activity in a business is where companies do not pay their employee obligations, close the company down and then the same directors and interest holders start up a new company operating essentially the same business. The government announced that “fraudulent phoenix companies gain a competitive advantage over their upstanding counterparts, having a negative impact on the economy as a whole. Employees often pay the price when companies “phoenix” or neglect their commitments to employees when entitlements are left unpaid and are often not recoverable.”
The measures proposed however, go beyond the stated intention as the proposed legislation covers all companies, not just those engaging in phoenix activities.
The consultation period for the exposure draft legislation expired on 1 August 2011 to allow for the introduction of the legislation in the Spring 2011 sittings of Parliament.
If this new regime becomes law then in order to avoid the automated recovery proceedings under the new regime, it is important to ensure that all returns such as Business Activity Statements and Superannuation Guarantee Statements, where they apply, are lodged by their due date. However, adhering to the lodgement timetable will mean in order for personal liability to be placed on directors the ATO would need to issue the Director Penalty Notice and wait for the 21 day period to expire before recovery proceedings can be commenced personally against a director.
Simon Della Marta
T: +61 2 9390 8310