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Budget changes alter Director’s responsibilities

Michael O'Brien

The recent Federal Budget contains a number of new initiatives designed at clamping down on ‘phoenix activity’ while also giving the Australian Taxation Office extra powers to deal with employers’ failure to pay superannuation via an expansion of Director Penalty Notices (DPN). These changes are expected to be passed as part of the budget and will come into effect on 1 July 2011.

Director Penalty Notices

Previously, DPNs have been issued to company directors only with regards to missed PAYG tax obligations, they will now include the superannuation guarantee payment obligations. A DPN effectively places liability on a company’s directors should the company remain in default of its obligations.

A summary of the DPN changes includes:

  • DPNs to be issued when PAYG instalments and the superannuation guarantee are three months overdue;
  • there is no longer a requirement to allow a 21 day grace period, all overdue amounts must be paid immediately;
  • if a payment is not made, the ATO can apply to have the company placed into liquidation and the directors of the company will become personally liable for all debts owed by the company for unpaid PAYG tax and unpaid superannuation guarantee liabilities; and
  • in certain circumstances directors will be prevented from obtaining credits for withheld amounts in their individual tax returns where the company has failed to pay withheld amounts to the ATO.

Phoenix Activity

The government also plans to crack down on ‘phoenix activity’, by which directors may have shifted assets from a financially troubled entity into a new business operated by the same or related people. The new business continues to trade under a new name with some or all of the assets of the previous business and theoretically none of the debt.

Changes proposed in the budget (Tax Laws Amendment (Transfer of Provisions)) will further clamp down on this type of activity.

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