Directors now personally liable for unpaid GST

Directors of a company may become personally liable for tax payable on Goods and Services Tax (GST), Wine Equalisation Tax and Luxury Car Tax which is not paid to the ATO by their company.

From the tax quarter starting 1st April 2020, these types of taxes will be included under the director penalty provisions of the tax legislation. The three taxes are all effectively assessed together under the GST Act; unpaid GST of course being the tax with the greatest financial exposure.

Current Director’s liability

The current legislation imposes personal liability on directors of a company for amounts owing by the company to the ATO for:

  • PAYG withholding (PAYG); and
  • Superannuation Guarantee Charges (SGC).

The latest legislation extends these obligations.

Director Penalty Notice

If a company fails to pay GST but it lodges activity statements within three months of the due dates, the ATO can issue a Director Penalty Notice (DPN) which makes each director personally liable to pay the debt.  The Commissioner is prevented from commencing recovery action against a director unless he gives 21 days written notice to the director concerned.

A way out

They can avoid the liability if with 21 days of the DPN being issued, they:

  • cause the GST to be paid,
  • place the company in liquidation or
  • place the company in voluntary administration.

Tax Estimate

And incomplete records can no longer be relied upon to frustrate the ATO.  If a company fails to pay GST and also fails to lodge activity statements within three months of being due, the ATO can estimate a company’s GST liability and issue a ‘Lockdown DPN’ making the director(s) liable for the company’s unpaid (including estimated) GST. 

Directors resignations

The addition of GST will significantly increase the number of people who will now potentially fall within the operation of the director penalty regime.

This new legislation now changes the date on which a director can resign. You can no longer lodge a form with ASIC that shows a director resigning many months earlier (in an attempt to avoid the GST liability).  From now on, a director’s resignation will take effect only on the day that the notice is lodged with ASIC unless the resignation was within 28 days prior to the notice being lodged, in which case it will take effect on the date of the resignation. These amendments effectively mean a director’s resignation may only be backdated a maximum of 28 days, leaving the director still in power for longer.

Under other amendments, from 18 February 2021 company directors will no longer be able to resign if this will leave the company without a director. A similar provision provides that the removal of a director through a shareholders’ resolution will be void if it leaves the company without a director.  These amendments target directors who try to avoid responsibility by backdating resignations and holds those individuals accountable for any misconduct whilst being the last sole director of a company.

If you need advice on the changes, contact Noel May or Amanda Klye on (03) 9585 7555

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