Under current law, if a company does not meet its Pay-as-You-Go (PAYG) withholding or Superannuation Charge Guarantee (SGC) obligations, the director can be held personally liable via the Director Penalty Notice (DPN) regime. On 5 February 2020, legislation passed to extend this liability to include GST.
Here we give a quick recap of the DPN regime. We also take a look at this new GST provision and what it means for directors, as well as for accountants and other advisors.
DPN regime overview
The DNP regime is a critical part of the Government’s efforts to tackle historical underreporting, significant unpaid ATO debt, and suspicious phoenix activity.
Currently, if a director fails to meet their PAYG or SGC reporting and payment liabilities in full by the due dates, they become personally liable for director penalties equal to the amount owed. In such cases, two types of DPN can be served:
If PAYG and SGC are unpaid but reported to the ATO, the DPN can be remitted if the director takes one the following actions within 21 days from the DPN date:
- Has the company, or another party, pay the full amount
- Appoints an administrator
- Places the company into liquidation
If PAYG and SCG are unpaid and unreported, the DPN can only be remitted if the outstanding amounts are paid in full within 21 days of the DPN date.
Please note: As of 1 April 2019, the reporting period for superannuation was reduced from three months to 28 days. The PAYG reporting period of three months from due date rule continues to apply.
Extension of DPN to include GST
The extension to include GST liabilities under the DPN regime falls under the Treasury Laws Amendment (Combating Illegal Phoenix Activity) Bill 2019, introduced into Parliament on 4 July 2019. As of 5 February, the Bill has passed the Senate, with new provisions for a five-year review for effectiveness.
Once the Bill receives royal assent, the Commissioner of Taxation would be allowed to declare a GST liability estimate. A director then has 21 days to ensure any outstanding amounts are dealt with to avoid being held accountable for GST.
This change means uncooperative directors (particularly phoenix operators) will no longer be able to exploit the current gap that exists in relation to GST liability.
Additional amendments in the Bill
As well as extending the DPN to include GST, the Bill also:
- Creates new phoenix offences and other rules about property transfers to defeat creditors (under the Corporations Act 2001)
- Improves the accountability of resigning directors (under the Corporations Act 2001)
- Amends the TAA to provide for the Commissioner of Taxation to retain tax refunds
DNP advice for new and existing directors
To avoid being hit with a DPN and any resulting penalties, we strongly advise all directors to ensure that the tax, superannuation, and GST obligations of their companies are in order. This includes new directors, who can be held personally liable for historical liabilities that remain unpaid or unreported within three months or more of their appointment.
Our advice for accountants and other advisors is to make sure you inform your clients of this change and ensure they stay vigilant in their reporting and payments.
This extension to the DNP regime has made the gap for non-compliance tighter than ever, so our overall advice is: don’t get caught out by avoidable mistakes.
If you or a client are struggling to meet your PAYG, SGC, or GST obligations, contact us today for timely, independent advice.