Who should read this eBrief

  • Company Directors
  • Accountants
  • Financial Advisors
  • In-house Counsel

Recent changes to Commonwealth legislation have extended the enforcement measures, and decreased the reporting timeframes, for a company’s superannuation guarantee charge (SGC) obligations. The proposed legislation will have further reaching consequences for directors in respect of a company’s PAYG withholding tax and GST obligations.

Can directors be liable for Superannuation Guarantee Charge?

From 1 April 2019, the measures contained in the Treasury Laws Amendment (2018 Measures No 4) Bill 2018 have taken effect as the Treasury Laws Amendment (2018 Measures No 4) Act 2019 (Cth).

As part of the Government’s program on enforcement of company taxation obligations, the time for reporting a company’s outstanding superannuation guarantee charge liability has been reduced from the previous 3 month period to the superannuation guarantee charge date, which is 1 month and 28 days from the end of each financial year quarter.

Failure to report within the new timeframe will result in personal liability for directors for the entire unpaid and unreported SGC sum.

What is the “lockdown” period?

Prior to the changes detailed above, a company director could be held personally liable for all outstanding company tax (including SGC) that had been unreported for more than 3 months after its due lodgement date.

Previously, if SGC was unpaid but was reported within the 3-month timeframe, personal liability could be avoided if a Director’s Penalty Notice (DPN) was issued, and a director exercised one of the following options detailed in the DPN, within the 21 day notice compliance period:

  1. Pay the tax liability;
  2. Appoint an administrator; or
  3. Appoint a liquidator.

The changes to the legislation now mean that a director cannot avoid personal liability for any outstanding SGC debt by appointing a voluntary administrator or liquidator to the company, where the SGC debt remains unpaid and unreported within 1 month and 28 days from the end of each financial year quarter. The debt is, therefore, “locked down” and remains a personal debt due by the director.[1]

Enforcement Actions

Prior to the changes, the Commissioner of Taxation had the power to recover financial penalties from an employer, and a company director of an employer, if employees’ superannuation was not paid on time, and in full.

From 1 April 2019, the new legislation provides the Commissioner of Taxation the power to pursue criminal penalties for serious contraventions of employer superannuation obligations, which penalties include time in jail.

Can a director face personal liability for GST?

Outside of a liquidation scenario, the short answer is not yet. Where a company fails to comply with its SGC and/or PAYG withholding obligations, the Commissioner of Taxation may recover the outstanding amounts from a director personally by way of a DPN.

Currently, the legislation does not extend to a similar recovery of GST. However, changes to the law proposed by the Treasury Laws Amendment (Combatting Illegal Phoenixing) Bill 2019 mean that, if the Bill receives royal assent, the director penalty regime will be extended to include GST liabilities as well. The amount of any penalty would equal the amount of the company’s unpaid GST obligations.

The changes to the Act impose more stringent requirements on directors to ensure that their companies comply with their tax reporting and payment obligations in a timely and efficient manner. Meyer Vandenberg can assist you in understanding your obligations and reduce the risk of personal liability as a director.