On 29 November 2012, the first wave of Australian company
directors became personally liable for unpaid superannuation under
the extended director penalty regime.
Director penalty regime
The Commonwealth of Australia recently amended the director
penalty regime, originally introduced in Australia in 1993 to
assist the Commissioner of Taxation in recovering company
Under Australian tax law, companies have an obligation to
withhold amounts from certain payments they make, such as wages to
employees and fees to directors. Under the director penalty regime,
directors who fail to cause a company to comply with its
obligations are personally liable for the amount that the company
should have paid. However, the Commissioner of Taxation must first
issue the director a written notice about the penalty, and then
must wait 21 days before commencing proceedings to recover the
director penalty. Directors are able to extinguish their personal
liability by placing the company into voluntary administration or
liquidation during the 21-day notice period and before the
Commissioner is able to commence proceedings to recover the
Extended director penalty regime
On 29 June 2012, changes were made to Australian taxation law
aiming to reduce the scope of fraudulent 'phoenix' activity
(in which a director intentionally accumulate debts, liquidates the
company to avoid paying its liabilities, then has the underlying
business 'rise again,' operating through another, debt-free
corporate entity) and avoidance of employee entitlement
These changes were achieved by:
Extending the director penalty regime and the estimates regime
to apply to unpaid superannuation payments
Ensuring that directors cannot discharge their director penalty
liabilities by placing their companies into administration or
liquidation when withholding amounts or when superannuation remains
unpaid and unreported three months after the due date
In some instances, making directors and their associates liable
for withholding non compliance tax (effectively reducing credit
entitlements) when their companies fail to pay amounts withheld to
The new legislation provides the Commissioner with a wider ambit
to pursue directors for breaches of their obligations. Extending
the director penalty regime to unpaid superannuation better secures
employees' entitlements, and, ideally, deters directors from
fraudulent phoenix activities and improves the regulatory
environment for compliant taxpayers.
Under the new regime, the 21-day notice period has been
dispensed with when the underlying liability remains unpaid and
unreported three months after the due date. Effectively, directors
will become automatically liable, and that liability cannot be
remitted by placing the company into administration or liquidation.
These changes came into force on 30 June 2012, and June quarter
superannuation reporting fell due on 29 August 2012: consequently,
the first wave of personal liability took effect on 29 November
The result in practice
Directors taking up new appointments at Australian companies
need to be increasingly vigilant. New directors will become liable
for director penalties if an obligation giving rise to a director
penalty exists, and, 30 days after the date of the director's
appointment, the director is still under that obligation. New
directors will not be subject to the restricted remission options
until three months after they become a director of the company, no
matter how long the company has been liable for the debt.
If you are planning on becoming a director of an Australian
entity, it is critical that proper due diligence be undertaken
regarding the company's tax affairs and employee entitlement
compliance and that professional advice is sought quickly about any
areas of concern.
This article was first published in Global Insight, our
e-newsletter which includes news, views and analysis from our
Global Restructuring Group. Please click here
to view the latest issue of Global Insight.
This publication is intended as a general overview and
discussion of the subjects dealt with. It is not intended to be,
and should not used as, a substitute for taking legal advice in any
specific situation. DLA Piper Australia will accept no
responsibility for any actions taken or not taken on the basis of
DLA Piper Australia is part of DLA Piper, a global law firm,
operating through various separate and distinct legal entities. For
further information, please refer to www.dlapiper.com
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).