ATO Activity in 2021 – Directors Personal Liability

With the JobKeeper scheme officially having ceased on 28 March 2021 and an ever-increasing $53 billion debt book, the Australian Taxation Office (“ATO”) has confirmed that it will now resume pursuing and enforcing debt recovery action.

However, the ATO have assured that firm action will likely not be taken against clients if they reach out to the ATO for help, stating that they “will generally not take compliance action where they are aware the client is trying to do the right thing”.

Nonetheless, there is no better time than now for directors to sit down with their accountant to ensure that they fully understand their company’s financial position and the resulting potential personal liability that directors can face as a result of company tax debts.

It is important to note that back in April 2020, the ATO added GST, Luxury Car Tax (“LCT”) and Wine Equalisation Tax (“WET”) to the list of taxation debts for which a director can now be held personally liable.

As such, directors ought to be aware that they can become personally liable for a company’s tax debts in two distinct ways:

1.  Lockdown liability (i.e. immediate and unavoidable personal liability)

• • • Should a company fail to report PAYG-w, GST, LCT and WET within three months from the due date for lodgement, then the director will be held personally liable for the outstanding taxation debts.
    • Superannuation Guarantee Charge (“SGC”) must be reported to the ATO by the due date, which is 28 days for most companies after the original superannuation amounts were due for payment, otherwise the director will be held personally liable for the outstanding SGC debts.

Upon the expiry of the reporting deadlines, the ATO can serve a Director Penalty Notice (“DPN”) on the director.

All associated personal liability under these ‘lockdown liabilities’ cannot be avoided by placing the company into external administration.

Lockdown liabilities can only be satisfied by repayment of the debt by the company or the director.

2.  Non-lockdown liability (i.e. potential personal liability)

Where PAYG-w, GST, LCT, WET and SGC are reported within the timeframes set out in (1.) above, but the related debts are not paid by the due date, the ATO has the discretion to issue a ‘non-lockdown liability’ DPN on the director.

Unlike ‘lockdown liability’ DPN’s, ‘non-lockdown liability’ DPN’s have the effect of making the director personally liable for the outstanding taxation debts and SGC, unless, within 21 days from the date on which the ATO posts the ‘non-lockdown liability’ DPN to the director, the company either:

• • • Pays the debts;
    • Appoints a Voluntary Administrator; or
    • Begins the process of winding the company up, in accordance with the Corporations Act 2001 (Cth).

As mentioned above, given the ATO has confirmed that it will now resume pursuing and enforcing debt recovery action, it is of the utmost importance that companies engage with the ATO and ensure that all lodgements are being made within the set deadlines, so as to avoid any DPN actions by the ATO.

Should one of your clients have a taxation or a superannuation guarantee charge debt and/or are showing signs of financial difficulty, please contact our office for an obligation free meeting to discuss the possible solutions available to your client.