Director Penalty Notices are a regular topic that I write articles about – and for good reason. They are very powerful in their operation of making directors personally liable for company tax debts. Recent reforms bringing Goods & Services Tax into the regime further strengthen the Australian Taxation Office’s power to influence the behaviours of directors.
In this article, I want to share the personal exposure risk that applies to a director who joins a company, only to subsequently realise the tax arrears position of the company.
These circumstances bring into play section 269-20(3) of the Taxation Administration Act 1953 which says, in general terms, that a director penalty for past obligations applies to new directors after 30 days of coming into office, starting on the date of their appointment. The only way to discharge this personal liability is for the company to enter either voluntary liquidation or voluntary administration within 30 days of their appointment (or for the company to pay the debt/s of course).
Resigning as a director inside the first 30 days does not relieve the individual of the personal impost – in fact, taking those steps may be even more detrimental as they will relinquish any control over the company’s chances of entering either liquidation or administration.
The ATO’s website is very clear on the topic: Before you become a director
So take care in the due diligence stage of considering an appointment as a director. Asking the right questions about the company’s tax debt and lodgement position will save heartache in the future.
About the author
Greg Quin is a Director at HLB Mann Judd Insolvency WA and has been with the team for 10 years. Greg oversees the daily operations of the many insolvency appointments managed by the HLB Insolvency team and looks after the operations of the practice.
If you have any queries about insolvency matters, please feel free to contact Greg on 08 9215 7900, 0402 943 091 or via email to firstname.lastname@example.org.