Important changes in the law governing a director’s liability for company debts have been forecast. The anticipated changes will mean that a company director’s personal liability for company debts will be extended to include unpaid superannuation guarantee contributions for their companies.
Directors are currently required to cause their company to pay deduction taxes, such as PAYG. If they fail to do so and receive a director penalty notice issued by the Australian Taxation Office, they may become personally liable for the amount of the indebtedness if the taxes are not paid within the time prescribed within 21 days from when the notice was issued. The only option available to directors in order to avoid personal liability for the debt is to place the company into voluntary administration or alternatively have it wound up in liquidation.
Each director of the company that is a director at the time the tax liability is incurred may be served with a director penalty notice and become subject to personal liability. This is the case even if the director resigned as a director from the company prior to the issuance of the director penalty notice.
The current law excludes a director from personal liability for unpaid superannuation guarantee contributions. It is anticipated however that changes will soon be made to extend the liability of directors to include a personal liability for 9% of each employee’s total salary, interest and administration charges.
Additionally, the proposed changes will give the Deputy Commissioner of Taxation power to immediately commence recovery proceedings against directors personally for outstanding PAYG and superannuation guarantee contributions of the company that have been outstanding and unreported for a period of three months. These proceedings can be commenced against directors without a director penalty notice first being issued.
Defences
A director may avoid personal liability if they can establish that:
- due to illness or other good reason the director was unable to take part in the management of the company; or
- the director took all reasonable steps to comply with their obligations.
For further information in relation to director penalty notices and the proposed changes to the law and how they will affect you please contact:
