Director Penalty Notice

A director has limited opportunity to avoid personal liability under a director penalty notice (DPN) issued on or after 30 June 2012 for pre-30 June 2012 pay as you go (PAYG) withholding liabilities under the TLAM No 2 2012 amendments?

Legislative references are to the Tax Laws Amendment (2012 Measures No. 2) Act 2012 (TLAM No 2 2012), the Taxation Administration Act 1953 (TAA 1953) and the Corporations Act 2001 (CA 2001).

Obligation

A company under an obligation to withhold must notify the Commissioner of the amount to be withheld on or before the day due to be paid and pay the amount to the Commissioner monthly, quarterly or annually (Sec. 16-160 TAA 1953; Div. 16-B TAA 1953).

Obligations under a DPN to pay superannuation guarantee charge were effective for the superannuation lodgement period ending on or after 30 June 2012.

The directors (from time to time) on or after the initial day must cause the company to comply with its obligations and continue under their obligation until the company complies with its obligations, an administrator is appointed or the company begins to be wound up (sec. 269-15 TAA 1953).

A director at the time of withholding (the initial day) or at the time a PAYG estimate (sec. 268-15 TAA 1953) is given (the initial day) does not avoid liability by resigning and ceasing to act as a director (DCT v Solomon [2003] NSWCA 62).

Obligations that the directors must cause the company to comply with are that on the initial day the company withhold the amount and to pay the Commissioner on or before the due day the amount in accordance with Div. 16-B TAA 1953 (sec. 269-10 TAA 1953).

Director’s penalty

A director is liable to pay a penalty if at the end of the due day the directors are still under the obligation. The penalty is due and payable at the end of the due day (sec. 269-20 TAA 1953). Accordingly, the director is concurrently liable for a penalty if the company has not withheld the amount on the initial day and has not paid the amount by the relevant month, quarter or annual due date.

The amendments apply to penalties due before 30 June 2012 to the extent the penalties are not paid, remitted or discharged before 30 June 2012 (see ATO Strengthening Director Obligations).

Penalty remission

A director’s penalty is remitted if the directors stop being under the relevant obligation before or within 21 days after the Commissioner gives a DPN by the company paying the amount, appointing an administrator or beginning to wind up the company.

The winding up of the company does not affect the penalty to the extent the company did not report the liability in the approved form within 3 months after the due date (sec. 269-30 TAA 1953; sec. 16-150 TAA 1953) (a lockdown director penalty).

The Commissioner will remit the directors’ personal liability penalty where the company has notified the Commissioner of the PAYG liability within 3 months of the due date (e.g. through the business activity statement) and has appointed an administrator or begun winding up the company before expiry of any DPN.

Where the company did not notify the Commissioner of the PAYG liability within 3 months of the due date, winding up the company will not avoid the directors’ personal liability for the penalty (see ATO Strengthening Director Obligations).

Defences

If the penalty is a lockdown director penalty, the director is not liable for a penalty if:

    • because of illness or some other good reason the director did not take part in the management of the company and it would have been unreasonable to expect the director to have taken part in the management of the company (CCA v Bracht [1989] VR 821; Robertson v DCT [2010] NSWCA 58);
    • the director took all reasonable steps to cause the company to comply with its obligations, have an administrator appointed or the company begin to be wound up DCT v Saunig [2002] NSWCA 390; DCT v Stenner [2003] QDC 53); or
    • there were no reasonable steps the director could have taken to cause the company to comply with its obligations, have an administrator appointed or the company begin to be wound up.

    The court cannot grant exoneration from liability (sec. 318 CA 2001; DCT v Dick [2007] NSWCA 190).

    Accordingly, there is limited opportunity for a director to avoid personal liabilities for pre-30 June 2012 PAYG liabilities under TLAM No 2 2012.