A Look at the Changes To The Director Penalty Notice Legislation

The Australian Treasury department has made the results of the public consultation process public with the issue of a new Exposure Draft detailing proposed changes to the director penalty notice regime.

You may keep in mind that the government proposed changes to the Director Penalty Notice legislation in last year's budget. The first draft was put forward in June 2011 but was widely condemned by directors and liquidators for being too wide reaching. That draft was scheduled to go before parliament in November 2011 but it was withdrawn for further industry consultation.

They summarise the changes as follows:

1. Expanding the director penalty regime to superannuation guarantee amounts.

2. Ensuring that directors cannot have their director penalties remitted by placing their company in to administration or liquidation when unpaid Pay As You Go (PAYG) withholding or Superannuation Guarantee (SG) amounts stay unpaid months after the due date.

3. Restricting access to PAYG withholding credits for company directors and their associates where the company has failed to pay withheld amounts to the Commissioner of Taxation.

Another point of interest is they have shied away from saying this proposed legislation is targeting phoenix company activity. The earlier draft was framed as the government's answer to stem the rising tide of phoenix company activity, a claim that received much criticism as the measures affected all companies.

The proposed legislation required PAYG and SG to be unpaid and unreported for 3 months, in short as long as the company exactly reported their debt the directors would not be held automatically personally liable. This is no longer the case under this new proposal. Even if all reporting is up to date directors will still be held automatically personally liable for any PAYG or SG debt over 3 months overdue.

Public submissions are closed, so they expect the legislation to go before parliament before the finish of this year.

The proposed amendments create an automatic liability for a director in circumstances where tax remains unpaid and unreported three months after the due date. This means that if a debt is not reported for 3 months after the due date there is no need for the ATO to issue a DPN - the director will already be personally liable for the unpaid tax or superannuation having failed to lodge the return. However, the media release for the revised legislation says that the ATO is required to issue DPNs in all cases before commencing action!

Article Source: Trisha Wells

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