Superannuation Guarantee Charge – company directors’ new personal liability
The Government is intent on improving tax compliance and putting a stop to fraudulent phoenix activity. As such, the Australian Taxation Office’s (ATO) powers are set to expand. They will soon be able to issue a ‘Director Penalty Notice’ to pursue company directors personally for their company’s withholding tax.
Under the Government’s proposed legislation, company directors will be held personally liable for their company’s failure to pay employee superannuation guarantee contributions, in addition to unpaid PAYG tax.
The proposed legislation is set to support the Government’s endeavour to counter directors actively involved in ‘phoenix companies’ - those who purposely attempt to avoid company debts.
Phoenix activity involves directors who intentionally transfer the assets of an indebted company at less than market value into a new company, of which they are also a director. The director then liquidates the company to avoid paying the company’s debts, whilst the director continues the business using the newly formed company unencumbered from the debts of the liquidated company.
It is anticipated that company directors will be held personally liable for the entire superannuation guarantee charge (SGC), not only the 9 per cent mandatory superannuation guarantee contribution.
It is expected that the SGC will include the following:
- 9 per cent of each employee’s total salary or wages
- an administration fee for each individual employee, currently set at $20 per quarter
- interest on the shortfall amount calculated from the beginning of the quarter in which the superannuation contribution was due until the later of either:
- the lodgement of a superannuation guarantee statement totalling the shortfall amount, or
- the 28th day of the second month after the end of the relevant quarter.
The proposed legislation should be sufficient incentive for company directors to be more responsible in meeting their company superannuation contributions.
The proposed legislation will also allow the ATO to commence action to wind up companies without the need for a 21-day notice period for liabilities that remain unreported after three months of becoming due. Further, the ATO will have the ability to withhold tax credits from the director’s individual tax returns where a company of which they are a director has failed to pay withheld amounts to the ATO.
The Government will ensure that directors who intend to resign before the SGC is due will still be held liable for any debt that remains payable at the time they held the position as a director. Directors who are appointed after the date that the debt is due will also become liable for the SGC 14 days after their appointment.
Ultimately, the proposed legislation will provide an additional safety net for unpaid tax and superannuation obligations, enhancing the ATO’s ability to pursue company directors personally and possibly bankrupt directors who fail to actively take responsibility for these obligations.