There are a number of personal risks associated with being a Company Director, including the possibility of becoming personally liable for tax liabilities.
Under new changes to the Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019, Company Directors will now be additionally liable for unpaid GST and other indirect taxes in some instances.
This means Company Directors could face bankruptcy and the loss of their personal assets where they fail to ensure the company pays their tax debts or promptly appoints a voluntary administrator or liquidator.
The changes aim to address illegal phoenixing and assist in the recovery of unpaid taxes by extending the pre-existing director penalty regime which was originally intended to protect employee entitlements such as superannuation guarantee.
As of 1 April, Directors are personally liable for:
- Unpaid superannuation and withholding tax
- Unpaid Luxury Car Tax (LCT)
- Wine Equalisation Tax (WET)
Existing Directors are also prevented from backdating resignations or resigning where it will leave the company with no directors and new directors will have a 30-day grace period from the date of their appointment to ensure the company pays their debt or appoints an administrator or liquidator.
Company Directors who fail to do so will be issued with a Director Penalty Notice by the Australian Taxation Office (ATO).
Are there any defences to this new personal liability for company directors?
Where a Director was ill or, for some other good reason, can demonstrate it was unreasonable to expect them to take part in the management of the company they will be excused from this provision.
Directors may also seek to rely on the reasonably arguable position where they took all reasonable steps, or there were no reasonable steps that could have been taken, to ensure that the company complied with their obligations and an administrator or liquidator was appointed.
From the passing of this Bill, it is clear the personal risks of being a Company Director have amplified. Those seeking to take on new directorship should proceed with caution and be aware of the potential situation of being hit with a Director Penalty Notice 30 days after appointment.
Further, Directors will need to ensure they have a strong grasp of the company’s GST and tax obligations and meet lodgement deadlines if they are to avoid personal liability.
This will require active involvement in monitoring compliance in checking payments are up to date and taking appropriate action if not.
Company Directors issued with a Director Penalty Notice or believe they may be exposed to a claim are further encouraged to seek legal advice.
The author of this article is Kym Butler, the Founder of Butlers Business Lawyers.