Net widened for directors’ personal liability for company debts.
The new illegal phoenixing amendments received royal assent on 17 February 2020, through the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020. The new law includes changes to the director penalty regime. This regime already imposed personal liability on directors for pay as you go (PAYG) withholding and superannuation. This has now been expanded to goods and services tax (GST), wine equalisation tax (WET) and luxury car tax (LCT)—let’s call it “net” GST.
These changes apply to tax periods from 1 April 2020 onwards. They are not retrospective and therefore do not apply to amounts outstanding prior to this date.
Like with PAYG and superannuation, personal liability for “net” GST will be imposed automatically by operation of law as soon as the debt is not paid by the due date.
Importantly, the director penalty regime legislation sets out a “prescribed timeframe” for statutory returns to be lodged. This gives directors the opportunity to extinguish or remit their personal liability, by putting the company into administration or liquidation within 21 days of a director penalty notice being issued. The penalty will also be remitted if the company pays the outstanding debt at any time. If the company does not lodge within the prescribed timeframe, the personal liability will permanently lock-down (and cannot be extinguished unless the debt is paid).
The prescribed timeframe for “net” GST is the same as for PAYG—being within three months of the lodgement’s due date. So, if the statutory return is due for lodgement on 21 April, it must be lodged before 21 July—otherwise the penalty permanently locks-down.
For superannuation, the prescribed timeframe for lodgement is the due day for lodgement of the superannuation guarantee charge return, being one month and 28 days from the end of a quarter.
The take home here is that regardless of whether your clients can pay the debt, they must ensure they lodge their statutory returns within the prescribed timeframe.
For more information on the director penalty regime, go to our factsheet (click here) that covers:
- payment by directors, and associates
- recovering withheld amounts
- estimates and director penalty notices
- recovering and remitting director penalties
- previous directors
- new directors
- right of indemnity and contribution.
As always, if you or your clients require any insolvency advice please contact your local Worrells office for help.