20 July 2011

The Treasury announced in the Federal Budget that legislation would be passed to make directors personally liable for the company’s unpaid Pay As You Go withholding and superannuation. The changes are said to be effective from 1 July 2011.

Despite 1 July 2011 having passed, the changes are yet to be made law in Australia.

What should you do?

As a minimum, you should ensure that your address details provided to ASIC are up to date, and that you check the mail at that address regularly. Preferably, your address should be an office that has a reliable postal record system. It is always wise to put asset protection measures in place as soon as possible before any solvency issues arise.

If your company is experiencing solvency issues, we strongly recommend that you contact us as soon as possible as the opportunities for a successful turnaround diminish as the company’s financial position deteriorates.

More Details

Currently, directors of Australian companies can be made personally liable to the company’s obligation to remit group tax deductions to the Australian Taxation Office by way of a “Director’s Penalty Notice“.

Directors Penalty Notices are governed by division 269 to Schedule 1 of the Taxation Administration Act 1953 (Cth).

They can be posted to the director’s residential address as notified to the Australian Securities and Investments Commission (“ASIC”), and if the director fails to act, they can be personally liable for the debt specified in the notice 21 days later, regardless of whether the notice is received by the director.

The director can avoid becoming personally liable for the debt by taking one of the following options within the 21 day period by:

a. causing the debt to be paid; or

b. placing the company into liquidation or voluntary administration.

The regime is essentially a final opportunity to directors to avoid personal liability for company unpaid Pay As You Go withholding liability.

Foreshadowed Changes to the Regime

The changes foreshadowed in the Federal Budget paper essentially mean that:

a. Director’s Penalty Notices could include unpaid superannuation guarantee liabilities;

b. directors can become personally liable for unpaid tax amounts three months after the amount fell due (without notice to the director).

Furthermore, the budget foreshadows that in certain circumstances directors and associates of directors will be prevented from obtaining credits for withheld amounts in their individual tax returns where the company has failed to pay withheld amounts to the Australian Taxation Office.

Who is at risk?

You may be at risk of becoming personally liable for your company’s debt if you are a director of a company which has an unpaid Pay as You Go withholding debt to the Australian Taxation Office or unpaid superannuation guarantee contribution.

What can you do?

This advice has been prepared without consideration of your individual circumstances.

Noting that these changes have yet to be made law, we strongly recommend that you contact us on (07) 3891 3333 to discuss how to protect your interests.