Did you know the responsibilities and possible liabilities that come with becoming a new company director? New directors need to know their obligations associated with unpaid tax liabilities such as PAYGW, GST and SGC. Let’s dive into the topic and explore how you can avoid becoming personally liable for director penalties before accepting a directorship.
What to Consider Before Becoming a Director of a Company?
It’s essential to conduct due diligence and check if the company has any outstanding or unreported liabilities for PAYGW, GST and SGC as a new director. It’s crucial to understand that once appointed, you become personally liable for any unpaid amounts.
However, there is a favourable opportunity for new directors to avoid liability for director penalties that were due before their appointment within 30 days of your appointment.
You need to ensure that the company takes specific actions to address its outstanding liabilities. The company must either:
- Pay full debts, from 1 April 2020, including PAYGW, net GST (including wine equalisation tax (WET) and luxury car tax (LCT) amounts), and from 1 April 2012, SGC.
- Hire an administrator under section 436A, 436B, or 436C of the Corporation Act 2001.
- Hire a small business restructuring practitioner under section 453B of the Corporation Act 2001.
- Start the process of being wound up, as determined by the Corporation Act 2001.
It’s crucial to check that even if you resign as a director within the 30-day time period, you will still be responsible for any unpaid PAYGW withholding, SGC or net GST liabilities that were outstanding prior to your appointment.
Let’s consider an example to illustrate the appointment of a new director, Kevin and Ashley are directors of XYZ Proprietary Limited from January to March quarter of the 2019 to 20 income year.
The company withheld tax from employees’ salaries/wages but didn’t pay PAYGW. As a result, Ashley and Kevin both became personally responsible for a penalty amount equivalent to the unpaid amounts. On June 2nd 2020 Michael became a director of the company.
Michael has 30 days from the date of his appointment to ensure that the company takes one of the following actions:
- Pay the outstanding amount
- Appoint a voluntary administrator
- Hire a small business restructuring practitioner
- Initiate the process of liquidation.
If Michael doesn’t ensure the company takes at least one of the suggested actions within 30 days, he too will become personally responsible for the unpaid PAYGW.
New directors must understand their responsibilities and take immediate action to identify any outstanding tax liabilities, get professional advice, ensure compliance and safeguard themselves from potential penalties.
After Becoming a Director
Once you assume the role of a director, it becomes your responsibility to ensure the company fulfills its complete net GST, SGC, and PAYGW obligations by the specified deadline.
You are personally responsible for director penalties if these requirements are not completed unless you take actions to make sure the firm files and pays its:
- PAYGW by the due date
- Net GST by the due date, and
- SG to employees’ superannuation funds by the due date – if that doesn’t happen, the company needs to file a superannuation guarantee statement and pay the SGC liability.
A Director Penalty is a Parallel Liability
The amounts owed are probably the same for all directors if the company has more than one. This is due to the simultaneous nature of the director penalty obligation and the company liability (what the firm owes). Depending on the circumstances of each director, the ATO may recover director penalties from all of them equally.
If You Resign as a Director and are No Longer a Director
Even after resigning as a director, you are still liable for director penalties for liabilities of the organisation that:
- were due prior to the date of your resignation
- fell due after you resign if
- for net GST and PAYGW (including WET and LCT), the first withholding event in the reporting time happened prior to your resignation
- for SGC liabilities, the date the charge becomes payable.
After resigning as a director before:
- the first withholding event in that time for net GST and PAYGW, you’ll be responsible for any outstanding liabilities for reporting time that began while you were a director
- you will be held accountable for any unpaid liabilities related to reporting time that commenced during your tenure as a director, starting from the date on which the SGC (Superannuation Guarantee Charge) became payable.
The blog shares director penalties and responsibilities that you should be aware of when you become a director of the company. Moreover, for more information, you can get in touch with Reliable Melbourne Accountants.
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