If you are a company director or an associate of a director, you are likely to be affected by changes to the Personal Liability for Corporate Fault Reform Bill 2012 which reduced the scope for companies to engage in fraudulent activity or evade their employees’ entitlements.
The changes not only render company directors personally liable for outstanding superannuation guarantee (SG) charges and pay-as-you-go (PAYG) withholding if the company fails to make these payments within the stipulated time; it places the burden of proof on company directors to prove they are innocent.
Directors will only face personal criminal liability for the misconduct of a company in specific circumstances – such as when there is potential for significant public
harm that may be caused by the particular offence or the director has the capacity to influence the conduct of the company. However, prosecution is not the first and foremost punishment if a director is found to be personally liable for a company’s offence; administrative penalties and the initiation of civil recovery processes are each an alternative to prosecution.
Key elements of the changes that came into effect on June 30, 2012 are outlined below.
- In addition to liability for PAYG withholding amounts, directors are personally liable for their company’s unpaid SG charge.
- In addition to estimating unpaid PAYG withholding liabilities, the Commissioner can estimate unpaid superannuation guarantee charge.
- A new director does not become liable for a director penalty until 30 days after they become a director.
- In order to recover a director penalty from a director, the Commissioner must issue a director penalty notice and wait until the end of 21 days after issuing that notice before commencing proceedings. However, the Commissioner may also serve a copy of a director penalty notice on the director at
his or her tax agent’s address. Giving a copy of the notice to the tax agent does not affect when the Commissioner may commence proceedings to recover the penalty.
- A director can achieve remission of their personal liability by causing one of three things to happen before a director penalty notice is issued or within 21-days after the issue of the notice:
- the company pays the liability
- an administrator of the company is appointed, or
- the company begins to be wound up.
- However, where three months has lapsed after the due day for the company liability and the liability remains unpaid and unreported the director can no longer achieve remission of the penalty. For new directors, the three month period counts from when they become a director of a company, rather than three months after a debt arose.
- It counts as a defence if a director had an illness that prevented them from participating in the management of the company, or if they took all reasonable steps to ensure compliance. In addition to these defences, a director is not liable to a director penalty if the company treated the Superannuation Guarantee (Administration) Act 1992 (SGA Act 1992) as applying to a matter in a way that was reasonably arguable and the company took reasonable care in applying the SGA Act 1992 to the matter.
- In some instances, directors and their associates are liable to PAYG withholding non-compliance tax, a tax equivalent to reducing PAYG credit entitlements where the company has failed to pay amounts withheld to the Commissioner.
Welcome to the InterActive Tax Consultants’ news – part of our personal and easy to understand approach to taxation. We are committed to working with you to achieve the best results for your business. If you have any question or would like more information on any of the articles please contact us.