Directors beware! You may now be personally liable for unpaid GST.

14 February 2020

Generally, the directors of a company are not personally liable for the liabilities (or obligations) of their company.

There have been for some time exceptions to this general rule for certain tax liabilities of a company, primarily for any unpaid employee entitlements (PAYG) and unpaid superannuation contributions (SGC).

Last week the Senate passed the Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019, and these exceptions are now set to expand by making directors personally liable for their company’s GST liabilities.

These new provisions are likely to apply from 1 April 2020, and once in force, the ATO will be empowered to collect unpaid GST from directors in the same way as PAYG and SGC tax obligations can be recovered through a Director Penalty Notice (DPN).

Directors will have 21 days from the date a DPN is issued to comply with the notice in order to avoid personal liability, provided the company has lodged activity statements within three months of the due dates, even if the GST is not paid.

In order to comply with a DPN, and avoid personal liability, the director must:

  • Cause the GST to be paid;
  • Place the company in liquidation; or
  • Place the company in voluntary administration.

Importantly, if the company fails to pay GST and also fails to lodge activity statements within three months of the due dates, then a director who receives a DPN does not avoid liability by placing the company into either liquidation or voluntary administration.

What should I do?

  • Directors must review their internal systems to ensure they are calculating GST correctly, that GST is paid by the company in a timely manner and that activity statements are lodged within three months of the due date.  All companies should undertake a “GST Health Check” to ensure they have adequate controls around their GST accounting and BAS preparation and lodgement processes.
  • With the corporate veil being pierced even further, directors must review their individual asset protection strategies to reduce and limit their own personal risk.
  • Conduct due diligence in respect of a company’s unpaid statutory obligations (including GST, PAYG and SGC) before consenting to an appointment, because newly appointed directors will inherit (and can be made liable for) old GST, PAYG and SGC debts.  
  • Directors must keep abreast of the financial affairs of the company more than ever – the risk of being a “passive director” is far too great. 
  • Directors should regularly update their personal details with the ASIC in order to avoid the issuing of any DPN to an incorrect address.

The Bill is awaiting Royal Assent which is likely to occur later this month. 

Seek professional advice

If you wish to understand the Director Penalty Notices regime in further detail or wish to consider personal asset protection measures, please contact a member of our team to discuss your options.

 

John Saunders, Partner
(07) 3307 4566
jsaunders@shandtaylor.com.au

Brad Clark, Partner
(07) 3307 4527
bclark@shandtaylor.com.au

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