Director’s now personally liable for GST liabilities

Did you know that recently introduced laws can now make company directors personally liable for unremitted Goods and Services Taxes (GST), Wine Equalisation Tax (WET), Luxury Car Tax (LCT) as well as Pay As You Go (PAYG) deductions and Superannuation Guarantee Charges (SGCs).

The ATO have amended the Director Penalty Notice Provisions to enable them to take greater action.

A company (or Trust with corporate trustee) must now lodge Activity Statements and pay GST by the required due dates.Previously the only recourse which the ATO had if a company failed to pay GST was to take action against the company itself. This included issuing a Garnishee Notice (commonly to a company’s bank) or commencing action to liquidate the company.

However, the ATO will now be able to issue Director Penalty Notices for unpaid GST and other taxes from 1 April 2020. The effects of this will be that:

  • If a company fails to pay GST but it lodges its BAS within three months of being due, the ATO will be able to issue Director Penalty Notices to the company’s directors. The directors can avoid liability if the GST is paid, or if the company is placed in liquidation or voluntary administration within twenty-one days of the date of the Director Penalty Notice.
  • If a company fails to pay GST and it also fails to lodge its BAS within three months of being due, the directors will be automatically personally liable for unpaid GST. The only way the directors can avoid personal liability is if the company ultimately pays the outstanding GST.

The legislation also allows the ATO to estimate the liabilities and issue Director Penalty Notices based on estimates.

In addition, the ATO can also report tax debts of businesses, meeting certain criteria, to registered credit reporting bureaus (CRBs), which will affect the ability of both the company and its directors to access future borrowings from banks/credit providers.

What this all means, is that businesses can no longer treat the ATO like a line of credit or a payment of last resort. You should always lodge on time, and then consider payment options if struggling to pay.

As said in a recent article by Kyle Kimball, from specialist business and insolvency law firm Sajen Legal… The Tax Commissioner has the most effective recovery arsenal in the country. Not paying your taxes is a fundamental indicator of insolvency and can trigger all manner of collateral liabilities to 3rd parties. Plan for it and pay it, on time. Negotiate a payment plan if cash is tight, but don’t wait for the ATO to chase you to do so, and stick to the plan in case you need future largesse.

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