Director Penalty Regime – Guide for Directors

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What is the director penalty regime?

The director penalty regime applies to:

  • unpaid PAYG withholding amounts.
  • unpaid SGC obligations.

The overarching objective of the director penalty regime is to make directors ensure the company complies with certain taxation and superannuation obligations. Directors have a legal responsibility to ensure the company meets its PAYG withholding and SGC obligations. These measures were introduced to ensure directors of companies take appropriate and prompt action with respect to employee entitlements.

If you are a company director and the company has outstanding PAYG withholding and SGC obligations, you will become personally liable for a penalty equal to these amounts.

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 towards the original liability and are sometimes referred to as parallel liabilities.

What is a director penalty notice?

To recover a director penalty from a director, the Commissioner will issue a director penalty notice (DPN) and wait until the 22nd day after issuing that notice before commencing proceedings.

A DPN will be sent to the director at the address listed with the Australian Securities and Investment Commission (ASIC) and will describe the options that are available to a director in order to achieve remission of the director penalties. Usually the company representative or tax agent will have been made aware of the liability to director penalties. The DPN will only be posted to the director of the company.

A DPN will list the following options available to a director for discharging a penalty within 21 days of the notice being issued.

For unpaid amounts that were reported within three months of the due date:

  • payment of the debt
  • appointment of an administrator under section 436A, 436B or 436C of the Corporations Act 2001
  • having a liquidator appointed to wind up the company.

For unpaid amounts that were not reported within three months of the due date:

  • payment of the debt.

If these actions are not taken before the 22nd day after the DPN is given to the director, the penalty is not remitted and the director is liable for the penalty amount until it is paid in full.

Remitting the Penalty

The director penalty regime will not affect directors if they ensure their company complies with its PAYG withholding and superannuation guarantee requirements under the law.

Where a penalty is incurred, there are certain actions that can be taken by the company or its directors to cause the penalty to be remitted.

Where the company has reported its PAYG withholding and SGC obligations within three months of the due date, the director penalty will be remitted if you take one of the following actions any time before the 21st day after a DPN is issued to you via Australia Post:

  • pay the debt in full
  • appoint an administrator
  • appoint a liquidator to wind up the company

Liability of former directors

Directors remain liable under the director penalty regime for penalties equal to the unpaid PAYG withholding and SGC liabilities of the company which were due up to the date of their resignation and also in respect of liabilities which fell due after the director’s resignation, but where the first withholding event in the reporting period occurred prior to the director’s resignation

Disputing a Director Penalty Notice

You will not be liable for a director penalty if one of the defences under the relevant legislation is available to you, namely that:

  • because of illness or for some other good reason, you did not take part (and it would have been unreasonable to expect you to take part) in the management of the company
  • you took all reasonable steps to ensure that one of the following three things happened
    • the company paid the amount outstanding
    • an administrator was appointed to the company
    • the directors began winding up the company
  • there were no reasonable steps you could have taken to ensure that any of those things happened
  • in the case of an unpaid SGC liability, the company treated the Superannuation Guarantee (Administration) Act 1992 as applying in a way that could be reasonably argued was in accordance with the law, and took reasonable care in applying that Act.

We will evaluate any defences submitted by the director and will not initiate or continue recovery proceedings if we believe a director could satisfy the court that they have a valid defence. The director also retains the right to advance a defence for consideration by the Court during the course of any legal recovery proceedings.

PAYG Withholding Non-compliance Tax (NCT)

Directors and their associates will, in some instances, be liable to pay the NCT where:

  • their company has a PAYG withholding liability for an income year
  • their company has not paid those amounts to the ATO
  • the director and their associates are entitled to claim a credit for those amounts

 

“This article has been provided by The Australian Taxation Office. ”

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