Warning for Company Directors with Unpaid Tax Debts
There are new changes being proposed for companies who are lazy with their tax obligations! Currently, if you are a director of a Companyand the company does not pay it’s tax liabilities they may be issued with a Director Penalty Notice. If a director doesn’t act after receiving a 21 day Notice, then the ATO can hold a director of a company personally liable for outstanding PAYG deductions. What is not well known is that there is legislation being considered in parliament now that will substantially expand those personal liability provisions.
The Coming Changes
Under legislation currently before parliament, there this is a very significant move towards automatic director personal liability for some company tax debts. The changes are in addition to the current Director Penalty Notices. The changes are:
- Where a PAYG or Super debt remains unreported and unpaid for three months after the Lodgment Day for a return, a director becomes automatically personally liable for that debt;
- The ATO can proceed to recover that debt/penalty from the director(s);
- Putting a company into Liquidation or Voluntary Administration after the three months has expired doesn’t avoid the personal liability (under current legislation the penalty could be avoided if the company was placed into liquidation within the 21 day notice period).
What do these new proposed changes mean for you?
If you are a director of a company and that company misses its Tax Lodgment Day by three months then you will be automatically personally liable for the company’s PAYG and Super debts. This is a change with enormous implications for directors that are lazy with their tax lodgement and superannuation payments.
What Should You Do?
In the past, when a company couldn’t pay its tax liabilities, directors sometimes thought it a good idea not to lodge the tax returns or BAS statements. That is now a very bad idea as it will most likely lead to personal liability. Directors need to:
- Immediately get their company BAS returns up to date;
- Always lodge the company BAS returns within three months of their due date;
- Lodge the BAS returns even if the company can’t pay them!!
In the situation where a company can’t pay the tax debt then that is a problem that needs to be addressed. But at least by lodging the return it avoids a starting position of director personal liability. In the situation where a company can never pay that tax debt a director should consider placing the company into liquidation.
If you think that you may be unable to pay your tax debt our advice is to contact us before the ATO contacts you. We are finding that the ATO are becoming very aggressive in recovering debts and that the sooner we contact them with an arrangement the better. We can also work with you to manage your liabilities and your cashflow including taking over paying and managing your bills if required.