WARNING FOR DIRECTORS OF COMPANIES THAT OWE PAYG WITHHOLDING – URGENT ACTION SHOULD BE CONSIDERED, OTHERWISE THEY MAY FIND THEY WILL NO LONGER BE ABLE TO AVOID PERSONAL LIABILITY FOR THEIR COMPANY’S DEBT.
Most would be aware that there is currently legislation before the House of Representatives proposing amendments to the Directors Penalty Notice provisions.
These amendments, if passed, could have far reaching consequences on directors of companies that owe the Australian Taxation Office (ATO) outstanding pay as you go (PAYG) withholding deductions.
It would appear that under the proposed legislation, a director will no longer be able to avoid personal liability if their company has a PAYG debt when the following applies:
- The debt is older than three (3) months; and
- The debt was not reported to the ATO within three (3) months of the lodgement date; and
- The amendments become law.
Our view is, that the only way a director can avoid personal liability for the debt in these circumstances, and the action must be taken before the amendments become law, is to either:
1. Place the company into Liquidation; or
2. Place the company into Voluntary Administration; or
3. Cause the debt to be paid.
Reporting* the debt to the ATO, before the amendments become law, was thought to be sufficient to mitigate the personal liability however that is not now believed to be sufficient where the debt is older than and not reported within three (3) months of the lodgement date.
It would seem that unless one of the above alternatives is actioned before the amendments become law, directors may not be able to absolve themselves of personal liability for their company’s existing outstanding PAYG debt other than to rely on the defences set out in the Bill. The proposed amendments will in essence have a retrospective effect.
*Note: Reporting to the ATO entails lodging a completed BAS return