Director’s Personal Liability for Unpaid Company Tax

Hidden Dangers of Unpaid or Unreported PAYG withholding or SGC Charges

director-liability

If you are a director or are about to become a director of a company, you should make immediate inquiries to ascertain if there are any unpaid and unreported Pay As You Go (PAYG) withholding or Superannuation Guarantee Charge (SGC) amounts.

Directors of a company that fail to meet a PAYG withholding or SGC liability by the due date will become personally liable for a penalty equal to the unpaid amount. The Commissioner of Taxation may issue you with a director penalty notice (DPN) in respect of a penalty which is equal to your company’s unpaid liabilities. Failure to take appropriate steps within 21 days may result in the Commissioner taking recovery action against you personally to recover that penalty, which is equivalent to your company’s unpaid PAYG withholding or SGC liabilities.

Even if you are no longer a director of a company, or are a newly-appointed director, or even if you were not a director at the time the debt was incurred, a director penalty may still apply to you.

Therefore, when and if buying a company, a key component of the due diligence process undertaken by a potential purchaser should be an assessment of whether the company is up-to-date with its PAYG and SGC obligations (as part of this, a potential buyer should also consider whether any ‘contractors’ to whom payments were made would be seen as ’employees’ in the eyes of the ATO, WorkCover and State Revenue Offices).

The buyer will also ordinarily want the vendor to provide some kind of indemnity in relation to the buyer’s PAYG and SGC exposure.

Please contact our office if you would like any more information on the above.