The ATO has held the power to recover certain company taxation
obligations from directors personally by issuing of Director
Penalty Notices (DPNs) since June 1993.
Under the DPN provisions, a director is personally liable for
any unremitted withholding taxes (PAYG being the most common) once
the due date for payment has passed and the company has not met its
When a director consents to be, and is appointed as, a director
of a company, they have an obligation to ensure that the company
remits any outstanding withholding taxes at that point in time.
However, they do not automatically acquire a personal liability for
these unpaid amounts from day 1.
A director can also look to mitigate the accruing of any further
personal liability (but not those liabilities that have accrued up
until that time) by resigning from his or her position as a
New Measures for Incoming Directors
The government recently amended the rules which apply to the
timeframes under which incoming directors must act to avoid
personal liability with respect to Pay As You Go (PAYG) Withholding
Tax and Superannuation Guarantee Charge (SGC) liabilities that
existed before they took office.
These timeframes are designed to avoid imposing penalties on new
directors for the company's existing non-compliance, however
making them accountable once they have had adequate time to take
action to remedy any outstanding obligations of the company.
Previously, a new director had 14 days from the date of their
appointment as a director to deal with any of the company's
outstanding PAYG obligations before becoming personally liable
(subject to the DPN provisions) for the outstanding PAYG debts.
Under the new legislation, an incoming director has 30
days (as opposed to the previous 14 days) after accepting
an appointment before becoming personally liable for:
Any and all unpaid PAYG amounts owing by the company,
regardless of their age and whether the ATO has been notified of
the liability; and
Any SGC liabilities which have been incurred in the first SGC
quarter post-29 June 2012 (ie. the June 2012 quarter SGC
liabilities) and which remain unpaid.
When can the ATO collect these amounts?
Notwithstanding that an incoming director becomes personally
liable for any outstanding PAYG and SGC obligations upon the
expiration of 30 days after their appointment, the ATO is still
required to issue a DPN before they can proceed with recovery
proceedings against the director personally.
Where the company's outstanding PAYG and SGC tax obligations
have been reported within 3 months of their due date (even if they
have not been paid), the legislation requires the ATO to issue a
standard DPN which will grant a director the 3 admission options to
avoid personal liability, ie. payment of a debt, placing a company
into administration and/or liquidation within a 21 day notice
However, pursuant to the new provisions which came into effect
on 29 June 2012, where the company's outstanding PAYG and SGC
liabilities remain unreported and
unpaid for more than 3 months after their due
date, then the new "lockdown" provisions apply.
What this means for a new director is that 3 months after the
appointment, if the PAYG and SGC liabilities still remain
unreported and unpaid, the DPN
issued by the ATO in those circumstances will not include any
ability for the penalty to be remitted by placing a company into
administration or liquidation. In other words, the DPN will simply
One of the due diligent measures an incoming director may rely
upon is an examination of the company's ATO running balance
account for confirmation that no amounts remain outstanding with
respect to PAYG withholding or SGC liabilities. Unfortunately, an
incoming director can inherit a personal liability with respect to
PAYG and SGC liabilities that pre-date their appointment,
regardless of whether those withheld amounts have been notified to
If you are an incoming director, you need to be acutely aware of
the potential liability which you may be inheriting where the
company has outstanding PAYG and SGC liabilities. Sometimes such
liabilities will not be listed on the ATO statements, as they
relate to debts that have not been reported. Some of the ways in
which you may seek to mitigate (but not totally eliminate)
potential unforeseen risks, inheriting such personal liability,
include the following:
Conduct a thorough due diligence of any existing unreported and
unpaid PAYG and SGC liabilities before you consent to be appointed
as a director of the company; and
Ensure proper governance procedures are in place to ensure that
a company complies with its reporting obligations for all taxes,
but especially amounts withheld under PAYG and SGC withholding
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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