On 29 June 2012 the Tax Laws Amendment (2012 Measures No. 2) Act 2012 received royal assent. The new legislation amends the director penalty regime in the Taxation Administration Act 1953 (Cth) which imposes personal liability on directors for certain unpaid company tax in some circumstances.
The new legislation and explanatory memorandum can be found at the Parliament website.
On 18 April the government released for public comment exposure draft legislation for the Tax Laws Amendment (2012 Measures No. 2) Bill 2012: Companies' non-compliance with PAYG withholding and superannuation guarantee obligations. The exposure draft proposals and the previous director penalty regime are discussed in our Alert - Liability for directors for certain company tax: proposed reform.
Summary of amendments
1. The new legislation extends the coverage of the existing director penalty regime to the superannuation guarantee charge. This also leads to other new changes allowing for similar provisions to arise in respect of the superannuation guarantee charge as for PAYG liabilities.
2. The new legislation extends the no-liability period for a new director regarding particular outstanding tax debts of their company from 14 days to 30 days.
3. The new legislation changes the way the Australian Taxation Office can collect tax under the director penalty regime. Where a company fails to pay PAYG withholding amounts to the Commissioner, the Australian Taxation Office has a discretion to reduce a director's entitlement to PAYG withholding credits – and it should be noted this includes former directors where there was unpaid PAYG during the period of their directorship and where they had director's fees upon which PAYG was withheld. In addition, directors and their associates (which include family members potentially) who are entitled to PAYG withholding credits, may be liable to pay PAYG withholding non-compliance tax essentially cancelling the benefit of any such PAYG credits.
4. The new legislation makes available additional means to serve a director penalty notice on a director, allowing the Australian Taxation Office to serve a director at the director's tax agent's address.
5. One of the potential defences under the previous director penalty regime has been limited. Previously a director could extinguish potential personal liability by appointing an administrator or beginning the winding up of the company before the 21 day period following the service of a director penalty notice has passed. The new legislation provides that a director's personal liability can only be extinguished in this way within 3 months of the due date of the unpaid debt(s), or, for new directors, within 3 months of their becoming a director.
6. There is an additional defence for directors in circumstances where the company treated the Superannuation Guarantee (Administration) Act 1992 as applying to the matter in a way that was reasonably arguable, and where the company took reasonable care in applying that Act to the matter.
7. The previous defences remain unchanged. In some cases however, where the Australian Taxation Office has sought to recover the director penalty from a third party (for example using a garnishee order over funds due to the director), the new legislation provides that any defence raised by the director to the director penalty notice must be raised within 60 days of notification being given to the director that recovery has occurred or is occurring from a third party.