Director Penalty Notices

On 1 April 2020, amendments under the Treasury Laws Amendment (Combatting Illegal Phoenixing) Bill 2019, came into force.

Under the previous director penalty regime, a company director may have been held personally liable for the company's unpaid Pay As You Go ("PAYG") and Superannuation Guarantee Charge ("SGC") liabilities.  The changes to the director penalty regime are important, and have expanded the regime to include Goods and Services Tax ("GST"), Wine Equalisation Tax ("WET") and Luxury Car Tax ("LCT") liabilities.

PAYG

Directors become personally liable for PAYG obligations if they are unpaid within three months of the due date.  PAYG withholding payment (and reporting) is due 28 days after the relevant payment period (see below).

For small PAYG withholding entities (i.e. where withholdings are less than $25,000.00) who are required to report on a quarterly basis, the payment date is 28 days after the end of the relevant quarter.  If payment remains outstanding three months after that date, a director will automatically become liable for that obligation.  For example, payment for the first quarter (1 July 2019 to 30 September 2019) is due on 28 October 2019.  If that obligation remains unpaid after three months, the company's director(s) will become automatically liable for that unpaid obligation.

For medium PAYG withholding entities (i.e. where withholdings are between $25,001.00 and $1,000,000.00) who are required to report on a monthly basis, the payment due date is on the 21st day of the following month, and automatic personal liability will accrue three months after that due date.

If a company fails to pay its PAYG obligations, but lodges its activity statements within three months of the due date, the Commissioner of Taxation has the power to issue a Director Penalty Notice ("DPN") for the value of that liability.  Directors can avoid personal liability by doing one of the following within 21 days of the DPN issuing:

1. causing the PAYG liability to be paid;
2. appoint a voluntary administrator; or
3. placing the company into liquidation.

If, however, a company reports its unpaid PAYG liability after three months of its due date (or otherwise fails to lodge its activity statements), the Commissioner of Taxation can estimate the amount of the company's PAYG liability and issue a DPN to the value of that estimate.  A DPN issued in such circumstances is a "lockdown DPN".  Should a lockdown DPN issue, the only option available for remitting the penalty (and avoiding personal liability) is to pay the value of the penalty.

SCG

Like PAYG obligations, Superannuation Guarantee ("SG") payment is due 28 days after the end of the relevant quarter (or 28 days after month end if monthly payment is required by an award).  If the SG is not paid by the due date, a SGC is imposed, being the sum of any unpaid SG owed to employees, plus interest and administration fees.  The due date for reporting SGC is one month after the SG due date.  For example, SG for the first quarter (ending 30 September) is due on 28 October.  If payment of SG obligations is not made by that time, an SGC will arise, which is due 28 November.  If the SGC remains unpaid on 29 November, automatic personal liability will raise.

At that point, the Commissioner for Taxation may issue a lockdown DPN.  As above, the only way to remit same and avoid personal liability is to pay the value of the penalty.

Amendments to the regime

The amendments to the director penalty regime came into effect on 1 April 2020.  In short, those amendments extended the director penalty regime to include Goods and Services Tax ("GST"), Wine Equalisation Tax ("WET") and Luxury Car Tax ("LCT") liabilities (much in the same way the former regime applied to Super Guarantee Charge ("SGC") and Pay As You Go ("PAYG") liabilities).  For the purpose of this article, we refer only to GST liabilities, although the same principles apply to WET and LCT liabilities.

GST due dates will vary between entities.  Generally speaking, GST will be reported on a monthly or quarterly basis, with lodgement due dates being 28 days after the end of the relevant month or quarter.  For example, for monthly reporting, the due date for June will be 28 July, whereas the quarterly reporting, the due date for the first quarter (i.e. the quarter ending 30 September) will be 28 October.

If a company fails to pay GST, but lodges its activity statements within three months of the respective due date, the Commissioner of Taxation has the power to issue a DPN for the value of that liability.  As with the former regime (at least in respect of PAYG), directors can avoid liability by doing one of the following within 21 days of the DPN issuing:

1. causing the GST liability to be paid;
2. appoint a voluntary administrator; or
3. placing the company into liquidation.

If a company reports its unpaid GST liability after three months of its due date (or otherwise fails to lodge its activity statements), the Commissioner of Taxation can estimate the aggregate of a company's GST liability, and issue a lockdown DPN to the value of that estimate.  Should a lockdown DPN issue, the only option available for remitting the penalty (and avoiding personal liability) is to pay the liability.

Having a DPN issue against you can carry serious implications for you and your business.  We can work closely with your accountant or financial advisor to ensure you stay ahead of these changes and avoid a DPN.  Contact one of our local experts via the form below or by phone today.