Recent changes to company tax obligations could put company directors at increased risk of being personally liable for the Superannuation Guarantee Charge (SCG), according to legal experts Meyer Vandenberg Lawyers.
They explain amendments to the Commonwealth legislation in April have extended the enforcement measures and decreased the reporting timeframes for a company’s SCG obligations.
Meanwhile, further proposed legislation could have far-reaching consequences for directors in respect to a company’s PAYG withholding tax and GST obligations.
Here’s how it works…
Director liability for the Superannuation Guarantee Charge
On 1 April 2019, the Treasury Laws Amendment came into effect, meaning the Government’s program for enforcing company taxation obligations has now become more stringent.
As a result, the timeframe for reporting a company’s outstanding superannuation guarantee charge liability has been reduced from the previous three-month period to the superannuation guarantee charge date, which is one month and 28 days from the end of each financial year quarter.
Failure to report within the new timeframe will result in personal liability for directors for the entire unpaid and unreported SGC sum.
A “lockdown” period
Meyer Vandenberg Lawyers explains that while company directors were previously liable for outstanding company tax (including SGC) that had been unreported for more than three months after its due lodgement date, if SGC was unpaid but was reported within the three-month timeframe, personal liability could be avoided.
This scenario played out if a Director’s Penalty Notice (DPN) was issued, and a director exercised one of the following options detailed in the DPN, within the 21-day notice compliance period:
- Pay the tax liability;
- Appoint an administrator; or
- Appoint a liquidator.
The changes to the legislation now mean that a director cannot avoid personal liability for any outstanding SGC debt by appointing a voluntary administrator or liquidator to the company, where the SGC debt remains unpaid and unreported within one month and 28 days from the end of each financial year quarter.
The debt is, therefore, “locked down” and remains a personal debt due by the director.
Prior to the changes, the Commissioner of Taxation had the power to recover financial penalties from an employer, and a company director of an employer, if employees’ superannuation was not paid on time, and in full, Meyer Vandenberg Lawyers notes.
However, from 1 April 2019, the new legislation provides the Commissioner of Taxation the power to pursue criminal penalties for serious contraventions of employer superannuation obligations. These penalties include time in jail.
Can a director face personal liability for GST?
Outside of a liquidation scenario, Meyer Vandenberg Lawyers says the short answer is not yet. Where a company fails to comply with its SGC and/or PAYG withholding obligations, the Commissioner of Taxation may recover the outstanding amounts from a director personally by way of a DPN.
Currently, the legislation does not extend to a similar recovery of GST.
However, changes to the law proposed by the Treasury Laws Amendment Bill 2019 mean that, if the Bill receives royal assent, the director penalty regime will be extended to include GST liabilities as well. The amount of any penalty would equal the amount of the company’s unpaid GST obligations.
Meyer Vandenberg Lawyers says the changes to the Act impose more stringent requirements on directors to ensure that their companies comply with their tax reporting and payment obligations in a timely and efficient manner.