If you are a director, about to become a director, or were previously a director of a company, you may be personally liable for unpaid PAYG withholding (tax withheld from employee wages) or unpaid SGC amounts (employee superannuation). This also applies to companies acting as trustee. If this happens, you will be issued with a Director Penalty Notice.
IMPORTANT: If you are a director or about to become a director of a company, you should make immediate enquiries to ascertain if there are any unpaid and unreported Pay As You Go (PAYG) withholding or Superannuation Guarantee Charge (SGC) amounts.
By the time the ATO issues a DPN they would have already tried to civilly recover the outstanding debts by way of sending overdue notices and having a debt collector try recover the amounts.
When the ATO issues a DPN they will wait 22 days before commencing proceedings. The DPN will be sent to the director address listed with ASIC and will detail the options available to a director in order to resolve. The DPN will only be posted to the director of the company. The options are as follows:
Unpaid amounts reported within 3 months of due date:
- pay the outstanding debt
- appoint an administrator
- have a liquidator appointed to wind up the company
For unpaid amounts that were not reported within 3 months of the due date the only option is to pay the outstanding debt.
There is an easy way to avoid all of this: lodge and pay all employee PAYG withholding and superannuation within the specified timeframes. If the issue is you don’t have the funds to pay these debts when they fall due, you may have a bigger issue being whether the company is trading insolvent or not.
A recent decision on 24 June 2016 in the case Deputy Commissioner of Taxation v Panayi upheld a director’s penalty notice for $369,904.86 (plus interest plus pay plaintiff’s costs). In this case the defendant claimed his role in the business was only to oversee the maintenance of the fleet of trucks and to supervise the mechanics working at a workshop, not to participate in the administrative part of the business. He said he believed his brother (who deceased in 2013) was the sole director.
The Court said ASIC were notified of the appointment of the defendant as a director of the company from 1 January 2011, on the same day the previous director (the defendant’s brother) resigned. PAYG amounts were deducted from employees wages and withheld by the company but not remitted to the ATO. A DPN was served on 6 November 2012.
The defendant relied on three defences with one being that he was not a director. The court found the defendant’s claims that he was not a director failed. The Court said it was satisfied he was a director for the whole time from 1 January 2011 and held that the penalty imposed should not be remitted.
If you have a company or trust that has long unpaid employee PAYG amounts or superannuation, cannot meet it’s short term debts or you are potentially looking at being appointed a director of a company, I suggest you contact our office on 1300 553 532 or firstname.lastname@example.org to help guide you.