When a director gets one of these it can be really scary. So what are they and how can you avoid getting one?
As a company director, or a director of a corporate trustee, you normally have limited liability and debts of a company cannot be allocated to a director unless they have given personal guarantees.
However, for certain tax debts the ATO can make a director personally liable if the company or trust cannot pay those tax debts.
The debts relate to Superannuation liabilities of employees and PAYGW (employee tax the company has deducted from its employees but not paid to the ATO).
The ATO has signaled that they are not prepared to finance businesses via unpaid tax and superannuation obligations. In the last year, there has been increased activity by the ATO against businesses who are behind in lodging their tax returns, including other returns such as BAS and FBT.
This removal of ATO funding assistance has meant that many businesses now need to find external sources of finance to pay tax liabilities. Unfortunately, banks do not like funding tax liabilities.
If the ATO believes that a company might not be able to pay its debts or returns and BASs have not been lodged they are now likely to issue a Directors Penalty Notice.
This notice will insist that the director pay all amounts personally and bring all returns up to date within 21 days otherwise legal action and a claim against a director’s personal assets can be made. If the notice is ignored there are serious implications including fines and imprisonment.
So how can you avoid a penalty notice? Well firstly the obvious:
- Lodge outstanding BAS and PAYG as soon as possible
- Pay your BAS and Super amounts within the relevant time frames
- If you are late filing returns for BAS try to lodge them within 3 months of the due date.
The obvious assumes that the business has the funds to pay. Sometimes that is not possible. So what do you do then?
- · Get in touch with the ATO and try to get a payment plan in place. Do not ignore demands.
- · Get in touch with your advisor to see how you can structure your business to ensure payments can be made.
- · Try to obtain external funding from banks
If liabilities get out of hand you may need to seriously consider appointing a liquidator. This may be the only way to ensure a Directors Penalty Notice is not issued and you don’t lose your home. You must speak to an advisor at this point.
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