BACK TO LISTINGS

HOW TO AVOID PERSONAL LIABILITY FOR PAYG AND SUPERANNUATION OBLIGATIONS.

Newsletter

by Paul Gidley30.09.19

Confusion appears to surround the means by which company directors can extinguish personal liability for a company’s unpaid PAYG Withholding (PAYGW) and Superannuation Guarantee (SG) liabilities. 

The Director Penalty Notice Regime, commencing in 1993 and strengthened in 2012 and 2019, introduced director personal liability for unpaid tax, and then superannuation, obligations. The latter changes broadened the range of obligations that directors became personally liable for and limited the means of remitting them. 

As the size of these liabilities may be enough to send directors into personal insolvency, it’s important to help your clients understand how they can first avoid, and secondly remit, them.


What can directors become personally liable for?

PAYG Withholding – directors become personally liable for the full amount of any PAYG withheld that is unpaid and is not reported by the due date.

Superannuation Guarantee Charge (SGC) – directors become personally liable for a Superannuation Guarantee Charge (SGC) that is unpaid and is not reported by its due date. The SGC is the sum of any unpaid SG due to employees (usually paid monthly or quarterly) + an interest charge (currently 10%) + an administration fee per employee, per quarter.

When do directors become personally liable?

From 1 April 2019, Directors become personally liable 

  • for SGC obligations if they are unpaid by the due date.
  • for PAYG obligations if they are unpaid and unreported within 3 months of the due date.

The personal liability for PAYG however does not crystallise unless the lodgement remains outstanding for greater than 3 months past the payment/lodgement due date.

Directors can also become liable for PAYG by not complying with a Directors Penalty Notice (DPN).

PAYG withholding payment and lodgement is due 28 days after the end of the relevant payment period. The due date for reporting is also within 28 days. 

PAYG Withholding payment and reporting due dates:

Withholder size
Quarter
Payment/lodgement 
due date


Automatic liability date
 if no lodgement


Small (≤ $25,000)
Q1 1 July - 30 Sept
October 28
January 29
Q2 1 Oct- 31 Dec
January 28
May 29
Q3 1 Jan- 31 Mar
April 28
July 29
Q4 1 Apr-30 Jun
July 28
Oct 29


Payment due date


Automatic liability date
Medium (≥$25,001 ≤1,000,000)
21st day after end of the month

22st day after end of the month + 3 months


SG payment is due 28 days after the end of the quarter, or 28 days after the end of the month if the superannuation fund or employees’ award requires monthly payment.

The due date for reporting the SGC, which arises if the SG payment isn’t made on time, is 28 days after the end of the quarter + one month. 

No extensions post the due date to comply are given to Directors as is the case for PAYG. If payment remains outstanding at the lodgement date the director is automatically made personally liable. 

Superannuation Guarantee payment and Superannuation Guarantee Charge payment reporting due dates:

SG payment frequency
Quarter
Payment due date
Lodgement due date
Automatic Liability date
Quarterly
Ended 30 Sept
October 28
November 28
November 29
Ended 31 Dec
January 28
February 28
February 29
Ended 31 Mar
April 28
May 28
May 29
Ended 30 Jun
July 28
August 28
August 29


In summary the only way for a director to avoid personal liability for SGC is for the company to pay it.

What happens if PAYG liabilities ARE reported before the automatic liability date (ALD)?

If the PAYG liabilities are reported by ALD but remain unpaid, the Commissioner may issue company directors with a Director Penalty Notice (DPN). 

Directors have 21 days from the date notice is given to them to comply with the DPN to avoid personal liability for the outstanding amounts. The date the notice is given is the date that the notice is posted to the director, not when it is received.

Within the 21-day period the directors’ personal liability can ONLY BE avoided by having the company:

  • Pay the liability, or
  • Appoint a Voluntary Administrator, or
  • Commence liquidation.

After 21 days, voluntary administration or winding will no longer extinguish directors’ personal liability. The only remaining remittance is by payment. 

How can directors avoid personal liability for PAYGW and SGC?

The first most important way for directors to avoid personal liability is to make sure that reporting occurs on time. Secondly, if a director receives a DPN, they must comply with the directions in the notice within 21 days of the delivery date (the date the notice was posted – not received).


WARNING: ENTERING INTO AN ARRANGEMENT WITH THE COMMISSIONER WILL NOT USUALLY AVOID THE PERSONAL LIABILITY RISK POSED BY A DPN. MORE LIKELY, THE NEGOTIATIONS WILL CONTINUE PAST THE 21 DAY PERIOD THE DPN EXPIRING AND CRYSTALISING THE LIABILITY UPON THE DIRECTOR(S).


PERSONAL LIABILITY FOR GST IS COMING!

Similar personal liability provisions to those enacted for PAYG were expected to become Law by 1 October 2019 but are delayed in Parliament. It is however a matter of when not if.  Shaw Gidley expects this law will be applied retrospectively, another reason for Directors to remain diligent with their corporate tax obligations.

If any of your clients receive a DPN, you will provide valuable service to them by assisting them to determine if full payment or a payment arrangement is sustainable, or if Voluntary Administration or winding up would be more protective. 

Please do not hesitate to contact James, Paul, Scott or Jeff for advice regarding your clients’ corporate or personal insolvency needs.