How directors can find themselves personally liable for company debt

One of the advantages of operating a business through a company is the separation of business and personal assets. However, since April 2020, company directors can be held personally liable for unpaid Goods & Services Tax (GST), Luxury Car Tax (LCT) and Wine Equalisation Tax (WET) in addition to PAYG and Superannuation Guarantee Charge (SGC) liabilities. 

As 2021 progresses, the ATO will increase their focus on recovering outstanding tax debts, and so it is especially important that directors make it a priority to check that reporting and payments are up to date to avoid being served a Director Penalty Notice (DPN) by the ATO. A DPN is ultimately what will make the director personally liable for the debt and will put their personal assets at risk. Here’s how that can happen: 

1. Failure to report and pay tax/super on time  

A company must report details of its PAYG, GST, LCT and WET within 3 months of the due date; and report SCG (usually) within 28 days from the end of the quarter. If a company fails to do this, the ATO can serve a DPN on the director. 

Options to remit the penalty: 

The DPN can only be remitted by paying the debt in full. A director will not be able to avoid personal liability for the unpaid taxes or super by placing the company into liquidation or administration. 

2. Report tax/super on time, but fail to pay before the deadline 

If a company reports PAYG, GST, LCT, WET and SCG within the timeframes mentioned above, but the company fails to make payment on time, then the ATO can serve a DPN on the director.  

Options to remit the penalty: 

The company has 21 days from the date the ATO posts the DPN to the director to: 

• Pay the debt 

• Appoint a voluntary administrator 

• Place the company into liquidation 

In summary, if a company is struggling financially and is unable to meet outstanding tax debts, the director should make it a priority to continue to lodge BAS and SCG returns on time. Just lodging tax reports on time will increase the company’s options fourfold to avoid forced insolvency and protect the director’s personal assets. 

The ATO is more aware than ever of the payment status of a business’s superannuation and PAYG obligations due to new AI audit technology and the introduction of single touch payroll for all businesses (including those with 19 staff or less). They will work with you to address outstanding amounts but if you don’t engage with them, they will take stronger action which can include additional penalties. 

Auxilium Partners are experts in insolvency, corporate restructure and liquidation and can advise you or your client on the best path forward if your company has mounting tax debt. The first consultation with Auxilium Partners is free. Contact us today