The New ‘Director Penalty Regime’
The director penalty regime (DPR) is set out under Division 269 of Schedule 1 of the Taxation Administration Act 1953 (Cth) (TAA 1953).
The DPR imposes penalties on directors whose companies fail to pay PAYG withholding liabilities to the Commissioner, or who fail to remit amounts withheld, including from salaries/wages, dividends and interest.
Director Penalty Notices
The DPR imposes a requirement on directors to ensure that the company of which they are directors to forward moneys that are withheld to the Commissioner. It applies to both resident and non-resident directors.
Directors who cannot comply with this duty must ensure that the company enters voluntary administration or liquidation. A failure to do so will result in the director being personally liable, in conjunction with the company, for the amount of the unpaid liability.
The provisions apply to both directors holding office at the time of the non-compliance who have subsequently ceased to be directors, and to directors appointed after the time of non-compliance (if the amount remains unpaid 14 days after his or her appointment).
The new Amendments
The Tax Laws Amendment (2012 Measures No. 2) Act 2012 and the Pay As You Go Withholding Non-compliance Tax Act 2012 began operation on 29 June 2012.
Unpaid superannuation guarantee charge
Directors are now personally liable for their company’s unpaid superannuation guarantee charges (SGC). Penalties for unpaid SGC are imposed after the due date if the SGC has not been paid. An SGC is usually not payable until an employee self-assesses, or the Commissioner issues an assessment (whichever is earlier).
The Commissioner may make estimates of unpaid SGC and recover that amount under Div 268 of Sch 1 to the TAA. This estimated amount is treated as being payable on the due date, even if the SGC has not been assessed. A director may file a statutory declaration or affidavit to reduce or revoke the stated superannuation obligation (s 268-40 and 268-90(2A) TAA).
If a company took reasonable care in applying the Superannuation Guarantee (Administration) Act 1992 (Cth) to its circumstances, then this provides the company with a defence where it reasonably thought a worker was a contractor, not an employee, and that consequently superannuation was not payable.
Remission of penalties
Directors can no longer have their penalties remitted by placing their company into administration or liquidation when the company’s PAYGW or superannuation obligations remain unpaid and unreported three months after their due date.
The penalty is not remitted to the extent that the company has not notified the Commissioner before the due date of PAYG amounts withheld or superannuation guarantee charge statements underreported. Where the liability is for an amount which is estimated under Div 268, then the penalty is not remitted at all (see 269-30 TAA).
New defences under s 269-35 TAA
A director is not liable if because of illness or some other good reason, it would have been unreasonable to expect them to take part, and they did not take part in the management of the company; or
A director took all reasonable steps to ensure payment of the obligations, or that the company entered into administration or liquidation, or there were no reasonable steps that the director could have taken to ensure those things happened.
These defences must be raised with the Commissioner within 60 days of receiving notice of a penalty.
PAYGW non-compliance tax
PAYGW credits on directors and their associates are now withheld until the company complies with its PAYGW obligations (s 18-165 TAA).
An associate may be liable to PAYGW non-compliance tax if:
Firstly, they had actual knowledge of a company’s failure to pay, or were reckless as to that knowledge (based on their relationship with a director or the company), and they did not either take reasonable steps to influence the director to comply or otherwise report the non-compliance to the Commissioner or other responsible authorities.
Secondly, that associate was an employee of the company, and the Commissioner is satisfied that they were treated more favourably than other employees of the company.