Changes to Tax Legislation

The ATO receives an extension of their powers against directors
Article from: Peter Moore & Andrew Spring

On 29 June 2012, the Tax Laws Amendment (2012 Measures No.2) Act 2012 received Royal Assent with retrospective effect. This new legislation seeks to implement the changes proposed in the Federal Government's Action against fraudulent phoenix activity paper, published in March 2009.

In brief, the new legislation:

1. Requires reporting compliance within three months of the due date, otherwise the director will be automatically personally liable without notice and is unable to appoint an Administrator or Liquidator to cure their personal liability;

2. Allows the ATO to reduce a director’s entitlement to PAYG withholding credits and thereby increase the amount of tax to be paid on the director’s personal tax return; and

3. Allows the ATO to lift the corporate veil and collect outstanding Superannuation Guarantee Charge (“SGC”) from directors personally (non-retrospective).

- 1. Restrictions on the ability of directors to extinguish their personal liability

Under the pre-existing director penalty regime, companies are under an obligation to remit Pay As You Go Withholding (“PAYG W/H”) to the ATO by the due date (this obligation will now extend to SGC). Once the due date for payment has passed, these obligations are transferred to the director/s of the company by way of a director penalty, whereby directors become personally liable for the unpaid debts of the company.

Under the pre-existing legislation, a director was always able to have their director penalty (personal liability) remitted by doing one of the following:

• Paying the debt;
• Appointing an Administrator; or
• Winding up the company.

Pursuant to the director penalty regime, if a director received a director’s penalty notice (“DPN”), they then had 21 days to have their director penalty remitted (either pay the debt, appoint an Administrator or wind the company up), in order to avoid having the director penalty permanently attach itself to them.

While the above laws continue to apply, as a result of the changes made to the director penalty legislation, where three months has lapsed after the due date, and the liability remains unpaid and unreported, a director cannot have their director penalty remitted by appointing an Administrator or by winding up the company, and will be personally liable regardless.

This change will apply retrospectively in respect of PAYG and to all unpaid penalties (whether PAYG W/H or SGC) that are due at the commencement of the new legislation.

- 2. Pay As You Go non-compliance tax 3. Superannuation guarantee charge (“SGC”)

The recent changes have also increased the ATO’s ability to collect from directors (and in some cases their associates) any amounts of PAYG W/H that have not been remitted to the ATO.

Where a company has not remitted to the ATO PAYG W/H amounts withheld, the ATO has the discretion to reduce a director’s entitlements to PAYG W/H credits in their personal tax return, effectively increasing the amount of tax that the director will have to pay when they complete their personal tax return. The increase in personal tax that the director (or associate) has to pay is the “Pay As You Go Non-compliance Tax”.

The ATO has the discretion to reduce entitlements to PAYG W/H credits and impose the Pay As You Go Non-compliance Tax on current directors, former directors and in some cases associates of the directors.

- 3. Superannuation guarantee charge (“SGC”)

As a result of the changes, the Tax Administration Act 1953 has been amended to extend the director penalty regime to include outstanding SGC (or an estimate of SGC made by the ATO). Under the legislation, directors of companies will now
be personally liable for unpaid SGC once the due date for payment has passed.

The due date for payment of SGC is the date that the company is liable to lodge their superannuation guarantee statement with the ATO.

The director penalty is the amount of the outstanding SGC either:

As assessed by the company through the lodgement of
 their superannuation 
guarantee statement;
• As assessed by the ATO through a default assessment; or
• An estimate made by the ATO.

- Other changes

Some other changes introduced by the new legislation include:

If you have given the address of a registered tax agent to the ATO as your address for service for the purposes of any tax law, the ATO may also give notice by leaving a copy or posting it to the address of the registered tax agent.

• New directors do not become liable for director penalties (personal liability) until 30 days after they have become a director.

In summary

• It is essential to ensure reporting compliance with the ATO within three months of the due date, in respect of PAYG W/H and SGC, in order to allow directors to evade automatic personal responsibility for those liabilities in the event of insolvency.

• If a company is unable to pay its obligations to the ATO, directors should take proactive steps to consider the company’s solvency by speaking with a specialist insolvency adviser.

To discuss in further detail any aspect of the 
above, please do not hesitate to contact one of 
our friendly experts on (02) 93700400.

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