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Director Penalty regime changes now law

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You’ve probably heard something about the changes to the ATO’s Director Penalty Notice Regime (“DPN”).  As of 29 June 2012, they became law and the changes are significant!  They were designed to, and should, dramatically change the behaviour of company directors in regard to tax debts.

The new laws:

a)     expand the DPN regime to include Superannuation Guarantee amounts (“SG”) from 29 June 2012;

b)     make directors automatically personally liable if Pay As You Go (PAYG) or SG amounts remain unpaid and unreported three months after the due date for lodging a return and a director cannot cause their director penalties to be remitted by placing their company into voluntary administration or liquidation; and

c)     have effectively backdated the director personal liability for existing PAYG liabilities if the amounts are already unpaid and unreported three months after the due date.

Our suggestions:

Advice to all directors – All companies should get their returns up to date and lodge them.

If a company can’t pay its PAYG or Super liability, it should lodge the returns anyway otherwise the directors will become personally liable for the debt. So this should be a major change in director behaviour – in the past directors tended to not lodge returns and they only risked personal liability if the ATO sent a Director Penalty Notice, the theory being it would be hard for the ATO to pursue a debt they didn’t know about. This new legislation makes that a very bad approach.

Advice if PAYG debts are already 3 months late – either pay it or get the company into liquidation.

That’s right – start paying tax liabilities first, and especially the old liabilities.  If it can’t be paid then consider liquidation.  If the tax debt has been properly reported, or reporting is less than 3 months overdue, then with a liquidation the directors will avoid personal liability under the new legislation. If reporting is out of date, a liquidation won’t guarantee the director won’t hear from the tax office again, but it is their best chance. We feel the tax office is going to have its hands full enforcing these new laws and logic says companies already in liquidation will be at the bottom of the ATO’s list of priorities.

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