Erosion of company protections – Director Penalty Notices- ATO and OSR
One of the most sobering facts confronting a company director is the knowledge that the protections usually offered by a corporate structure can offer no protection at all in the face of an attacking ATO and OSR.
The Director Penalty regime creates a personal liability for a director when a company fails to meet its PAYG and superannuation obligations. The ATO uses this debt recovery tool often because it is aggressive and effective in recovering these taxes.
Over the last decade the Director Penalty regime has been tightened to increase the ability of the ATO to ensure that directors are forced to pay tax that the company has effectively collected on behalf of someone else, that is, third party taxes. There are very limited grounds available to challenge a Director Penalty Notice. It is, therefore, imperative that directors get professional accounting and legal advice about the state of their business if there is any concern about a personal exposure for a director.
With the ATO focus in the last few years on phoenix activity and their zero-tolerance stance on this issue, the pressure is on to make directors even more accountable for the financial performance of the business. To that end, the Government has stated its intention to extend the coverage of the regime to include a company’s unpaid GST liability.
Directors can also be surprised to know that a parallel but less frequently used provision exists in the State Payroll tax legislation.
To safeguard your rights and maximise your position, make sure to monitor the post so that you do not miss any deadlines to deal with the Notice and by dint, make yourself personally exposed to certain tax liabilities of your business. You only have 21 days to take action so time is of the essence.
If the trend over the last decade is a sign of things to come and the government continues to broaden the scope and application of the Director Penalty regime, the protections afforded by a company structure will erode further.