Director Liabilities extend to GST

The Parliament recently passed changes to the Corporations Act and Tax legislation in relation to combatting ‘illegal phoenixing activities’. While the aim of the changes is to stop company directors closing a company, walking away from its liabilities and starting a new company performing similar activities, the impact of the changes go much further.

From a tax perspective, the Australian Taxation Office (ATO) can now:

  • Act to collect an estimate of a company’s anticipated GST liabilities (in the instance the activity statements have not been correctly lodged);
  • Make company directors personally liable for the GST liabilities (or estimated liabilities) of the company they act for.

The changes extend not only to GST, but also to luxury car tax and wine equalisation tax.

The changes imposed on company directors will apply through the Director Penalty Notice regime.  This regime can make directors personally liable for certain tax debts of the company if the company fails to pay certain tax debts (until now Superannuation Guarantee Charge (SGC) and PAYG Withholding liabilities).  If this occurs, the ATO can issue a Director Penalty Notice (DPN) requiring the director to take action.

To avoid personal liability, the director has 21 days from the date of the DPN to either:

  • Cause the company to pay the debt;
  • Put the company into voluntary administration;
  • Put the company into liquidation.

If however, the actual debt is not reported within 3 months of the due date of the activity statement, or if the SGC statement is not lodged on time, then the only way to remit the penalty is for the debt to be paid.

Failure to take action will allow the ATO to recover the amounts from the director.

There are very few defences open to directors if they fail to take action.

All directors should make themselves aware of the financial position of the company, and take action to ensure that all relevant tax related liabilities are reported and paid on time.

Prospective directors should also ensure that the company they are considering a directorship with has met its tax obligations because the DPN regime can apply to existing tax liabilities also.

Upon receiving Royal Assent, the new rules should apply from 1 April 2020.

If you have any questions about how these changes will affect you, please contact your usual Mazars advisor or alternatively our tax specialists:

Brisbane – Jamie Towers

Melbourne – Evan Beissel

Sydney – Gaibrielle Cleary

+61 7 3218 3900

+61 3 9252 0800

+61 2 9922 1166

 

Published: 10 February 2020

 

Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.