On 5 July 2011, the Federal Government released an exposure
draft of the proposed amendments to the Tax Laws Amendment (2011
Measures No. 7) Bill 2011 (Bill) which will make company directors
personally liable for unpaid Superannuation Guarantee Charge (SGC)
contributions. These changes are effectively an extension of the
"director penalty" provisions making directors personally
liable for unremitted Pay As You Go (PAYG) withholding tax.
Given the recent decision of the High Court in Roy Morgan
Research Pty Ltd v Commissioner of Taxation  HCA 35,
affirming the validity and enforceability of the Superannuation
Guarantee (Administration) Act 1993 (Cth), the Federal Government
is now free to pursue the proposed amendments contained in the Bill
with little risk of legal challenge.
Under the proposed new laws, the SGC and PAYG withholding tax
liability of a company will:
follow the directors of the company even after they resign or
put the company into liquidation, and preclude the establishment of
another entity by the same directors if the directors cannot
personally discharge the debt; and
attach to any new directors who become a director within 14
days of the SGC or PAYG withholding tax debt falling due.
The proposed changes also include additional recovery powers for
the Australian Taxation Office (ATO), including:
the ability to commence actions against directors (or former
directors) without notice to the company or the directors after a
three month period where SGC contributions have not been made or
PAYG withholding tax has not been remitted;
the power to commence winding up companies that fail to pay SGC
or PAYG withholding tax debts, without the need to give
the discretion to deny PAYG withholding tax credits to
directors and their associates personally where they or their
company cannot satisfy the SGC and PAYG withholding tax
the ability to give a notice of estimated liabilities pursuant
to which the company or director has 21 days to rectify the
notified SGC or PAYG withholding tax liabilities before enforcement
It is not a defence to a recovery action under the proposed
legislation that the company had insufficient funds to meet the
debt – the director will be required to satisfy the debt
Although the proposed legislation has not yet been put before
Parliament, the Exposure Draft of the legislation indicates that
part of the legislation will have retrospective effect in that the
ability of the ATO to deny PAYG withholding tax credits to
directors and their associates will apply to credits generated from
1 July 2011.
These changes are principally targeted at curbing "phoenix
company" activities, where the directors of a company that
cannot meet its tax debts place that company into insolvency, and
then sets up as a different entity performing the same trading
activities free of the tax debt. However, this legislation will
also have broader implications, including increasing the likelihood
that individual directors (or potentially even former directors)
will be personally joined to SGC or PAYG withholding tax debt
recovery actions by the ATO, with a corresponding increase in
director's insurance premiums.
Given the recent decision in the Roy Morgan case and the
proposed changes to the law, there has never been a better time to
review superannuation and taxation arrangements for compliance
– in particular, superannuation and taxation arrangements
for independent contractors, which are often overlooked in
contractor engagement arrangements.
Once the legislation comes into force, individuals proposing to
take up new directorships should carry out a proper due diligence
of the company's compliance with its superannuation and
taxation obligations to ensure they do not inherit any personal
We will keep you updated as developments occur. In the
meantime, should you require any further information in relation to
the proposed imposition of director personal liability for SGC and
PAYG withholding tax debts, please contact us.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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