Company tax and superannuation liabilities which may have gone under the radar for years are the focus of a new crackdown by the Australian Taxation Office (ATO), and former company directors may be held personally liable.
Company directors are personally liable for the company’s unpaid amounts of:
- Pay as you go withholding tax (PAYG)
- Goods and Services Tax (GST)
- Super Guarantee Charge (SGC).
Importantly, directors become personally liable for these debts even if they take over directorship of the company after the debts have been incurred. If you resign as the director of a company, you will remain liable for debts incurred by the company before your resignation and, in some cases, afterwards.
The Federal Government has recently instructed the ATO to recover more than $34 billion in PAYG, GST and SGC debts owned by small businesses by issuing Director Penalty Notices. These Notices provide only 21 days for the debt to be paid in full before enforcement action may be taken, including:
- Garnisheeing wages
- Offsetting any tax credits against the director penalty
- Commencing legal proceedings to recover the debt.
The ATO will negotiate payment plans in some circumstances.
It is expected that the crackdown may affect businesses which incurred tax and superannuation debts during the Covid lockdown periods.
It is important to seek legal advice if you believe that you may be affected by the business debt crackdown, or if you have received a Directors Penalty Notice. There are some legal defences to directors’ liability, including inability to take part in management of the company during the relevant period due to illness or other acceptable reason. A defence must be lodged in writing with the ATO.
Small business operators, including those who have ceased trading, should consider whether there are any company debts for which they may be personally liable and engage with legal and financial advisers if they are concerned.
