Australia: Company directors now personally liable for company tax liabilities

In brief - Changes in law designed to clamp down on phoenix activity

As a result of changes to the law, directors of companies can now be held personally liable for a company's tax liabilities. The change has been justified by the need to eradicate so-called "phoenix activity", where directors knowingly allow a company to incur debts before putting it into liquidation and then continuing to operate the same business as a new entity with a clean slate.

Directors must ensure that companies pay tax and superannuation

The Tax Laws Amendment (2012 Measures No 2) Act 2012 creates a greater obligation upon directors to ensure companies remit the pay-as-you-go (PAYG) withheld amounts, as well as superannuation guarantee charges (SGC), within the statutory timeframe.

The main component of the new laws concerns a director's inability to achieve remission of a penalty in certain circumstances. Beginning on 30 June 2012, if the PAYG withheld amount is unreported and unpaid three months after the due date, the Australian Tax Office (ATO) can issue a director penalty notice in which the only option for the director is to pay the full amount of the debt.

Once the three month period has passed, placing the company into voluntary administration or liquidation does not absolve the director of responsibility for the unpaid debt. Newly appointed directors have three months from the date of their appointment, as opposed to the date the debt was due, before the restricted remission provisions apply.

Director penalty regime applies to unpaid employee superannuation

Another significant consequence of the new tax law is that the director penalty regime applies to unpaid SGC. Each quarter, a superannuation guarantee statement is to be lodged with the ATO and an SGC will apply to an employer who fails to make the minimum superannuation contribution by the due date for the quarter.

The SGC includes the unpaid amount, interest on the unpaid amount and an administrative charge. The employer is required to assess the amount due and pay it by the 28th day of the second month following the end of the quarter.

If the employer fails to make the payment, the new laws provide that personal liability will apply from the lodgement day. Additionally, the ATO has the power to estimate the unpaid SGC, which is then deemed to have been payable on the lodgement day.

Family members of company directors also affected

The liability can also extend to family members and associates of the director who were either partly responsible for the non-compliance or were treated "more favourably" than other employees as a result of the non-payment. There are tests to be applied by the ATO in determining if an associate is liable, including that the associate knew or could reasonably have known that the company had failed to make payments and did not take "reasonable steps" to influence the director to deal with the issue.

The spouses of directors who work together with them in small businesses are also now exposed to liability and need to be aware of their increased risks, even if they are not directors of the company.

Why have the changes been introduced?

The explanatory memorandum to the legislation justifies the amendments on the basis that there is significant phoenix activity in Australia, posing "a significant threat to employee entitlements, government revenue and the economy as a whole".

While it is questionable whether the evidence supports this extreme proposition, the policy message is that the protections that have traditionally been extended to individual shareholders and directors of a company are becoming less and less available. This trend seems likely to continue.

Those who do misuse the system to create and take advantage of phoenix companies will undoubtedly get their just desserts. However, for those who through no fault of their own are caught in an insolvent or distressed corporate situation, these amendments can only make it harder to trade out of difficulties or restructure the businesses.

Lodge tax returns and make all due payments on time

The surest way to keep out of trouble is to get all outstanding returns up to date and ensure that payments are made on time. Once this is done, you should make sure that all returns are lodged within three months of the due date, unless you are planning to place the company into administration or are winding up the company within that three month period.

Reducing employee numbers by taking on independent contractors or utilising labour hire may help you minimise risk.

The main message, however, is that directors must remain actively involved in their businesses and ensure that all statutory obligations are complied with and cash flows are sufficient to meet these obligations. Seeking advice early from an appropriately qualified advisor can assist in preventing liability falling on you and your family's assets.

Scott Hedge
Directors and officers
Colin Biggers & Paisley

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

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”

Mondaq Advice Centre (MACs)
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
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).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.