By Megan Lipp

You’ve probably heard something about the changes to the Australian Taxation Office’s Director Penalty Notice Regime (‘DPN’) which came into place in June 2012. These changes are significant and act as a stern warning for both existing directors and those embarking upon the role.

Under the new regime, a director and their associates will be personally liable for any Pay As You Go withholding tax and now extends the scope of Director Penalties to include a company’s employee superannuation (SGC) if they are not paid or reported within three months from their due date. Further, the new regime ensures that Directors cannot discharge their Director Penalties by placing their company into administration or liquidation where PAYG withholding and SGC remain unpaid and unreported beyond three months after the due date.

As well as strengthening directors’ obligations to arrange for their companies to meet Pay As You Go (PAYG) withholding and superannuation obligations, the measures also help counter phoenix behaviour.

Traditionally, companies have long been a preferred structure for new business ventures because they may provide protection of personal assets of directors. However, where a director seriously breaches their legal duties as a director, or allows the company to trade whilst insolvent, they may be personally liable.

Company directors must be fully aware of the financial position of their company. This means taking all reasonable steps to ensure that the company does not incur financial commitments that the company cannot afford. Relying solely on the word of the financial controller will no longer be an excuse. It should be noted that new Directors have been allowed a grace period of 30 days from their appointment date to ensure the company’s obligations are met before they become personally liable. Existing Directors are not given any such grace period.

Advice to all directors – All companies should get their returns up to date and lodged This relates specifically to the lodgement of the Business Activity Statements and/or SGC Statements by the relevant due dates. In ensuring timely lodgement, the directors, in the event of being served a Director Penalty Notice, will have the additional option of placing the company into voluntary administration or liquidation.

In addition, not keeping up to date with reporting etc and maintaining timely financial information and accounts, puts the director in a high-risk position in terms of this recent legislation as well as in terms of the continuing insolvency provisions.

Advice if PAYG debts are already 3 months late – either pay it or consider putting the company into liquidation Where possible, start paying tax liabilities first, especially the old liabilities. If it can’t be paid then consider liquidation – only AFTER seeking appropriate financial advice. However, if reporting is out of date, a liquidation won’t necessarily guarantee the Director won’t hear from the tax office again.

Other effects of changes to the legislation include the ability of the ATO to reduce a Director’s entitlement to PAYG withholding credits that may be coming back to them – and this can include former Directors. The ATO now also has additional means of serving a DPN including serving the notice to the director’s tax agent’s address.