Company Director: Exposure to company ATO debts

Newsletter 3 – Practice Note: 20/07/2021 – Addendum

ATO lodgement timelines for a director to have the opportunity to avoid personal liability for the company\’s debts

The ATO can make a director personally liable for some of the company\’s debts by issuing the director with a Director Penalty Notice (DPN).

Over time the DPN legislation has been strengthened, causing directors to be unable to avoid personal liability if the liability was not reported to the ATO within required timelines.

Directors can become personally liable for the following company taxes and obligation:

  • GST
  • PAYG
  • Superannuation Guarantee Charge (SGC)
  • Luxury Car Tax (LCT)
  • Wine Equalisation Tax (WET)

We summarise below required lodgement timelines to be met for a director to have the opportunity to avoid personal liability after receiving a DPN.

If the unpaid GST / LCT or WET was reported to the ATO within 3 months of the due date, then when the director receives a DPN, personal liability can be avoided by putting the company into Liquidation, Administration or appointing a Small Business Restructuring Practitioner within 21 days of the DPN being issued.

If the unpaid amount was not reported within 3 months of the due date, then when the director receives the DPN, liability cannot be avoided, the director is automatically liable for the GST / LCT or WET debt.

If the unpaid PAYG was reported to the ATO within 3 months of the due date, then when the director receives a DPN, personal liability can be avoided by putting the company into Liquidation, Administration or appointing a Small Business Restructuring Practitioner.

If the unpaid PAYG was not reported within 3 months of the due date, then when the director receives the DPN, the director cannot avoid liability and is automatically liable for the PAYG debt.

If the unpaid SGC amount was reported by the due date (note: not within 3 months like GST & PAYG), then when the director receives a DPN, personal liability can be avoided by putting the company into Liquidation or Administration or appointing a Small Business Restructuring Practitioner.

If the unpaid amount was not reported by the due date, then when the director receives the DPN, liability cannot be avoided, the director is automatically liable for the SGC debt.

NOTE: A Director has only 21 days from when the DPN was issued to have the company placed into Liquidation, Administration or Small Business Restructuring Administrator appointed.

NOTE: The ATO became able to make a director personally liable for GST, LCT and WET from 1 April 2020.

COMMENT: Directors cannot be made personally liable for a company’s income tax debt.

COMMENT: For the director to avoid personal liability, talking to a Liquidator, Administrator or Small Business Restructuring Practitioner is not enough. The company must be in Liquidation, Administration or Small Business Restructuring Practitioner appointed with 21 days of the ATO issuing the DPN.

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