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Company directors can be held personally liable for their firm’s unpaid Pay As You Go (PAYG) Taxes as well as unpaid employees’ compulsory superannuation under changes that quietly became law in the last few weeks.

You don’t have to be running a multi million dollar company to get caught by these changes. It applies to anyone who is a director of a company. This can include self employed tradesmen, shop owners or families running a small business.

Changes to the Director Penalty Notice (DPN) came into law on June 29. The changes give increased powers to the Australian Tax Office (ATO) when issuing directors a penalty notice.

Under previous provisions, directors could be held personally responsible for a company’s unpaid PAYG tax if – within 21 days of issuing the DPN - the company failed to pay the outstanding amount to the ATO.

Directors could avoid this situation if the company appointed a voluntary administrator or commences a voluntary winding up of the company within 21 days of receiving the DPN.

But now the tax office has even stronger powers to extract what it is owed by getting it from the directors’ pockets.

Under the new provisions, company directors cannot avoid personal liability if their company has failed to report its PAYG tax obligations to the ATO for more than three months after it was required to do so.

In other words, appointing an administrator or commencing a voluntary winding up of the company will no longer shield a company director from personally having to pay the company’s PAYG tax and superannuation obligations.

Rohan McAlpine of Stacks Law Firm in Bowral which specialises in insolvency, commercial and property law, warned company directors should make sure they know the details of this important change that could put their own assets at risk.

“This is a significant change to the DPN regime and makes a failure by a company to report its PAYG and superannuation obligations to the tax office significantly more onerous for company directors,” Mr McAlpine said.

For instance, if a company hadn’t paid its PAYG taxes or superannuation to the ATO for the past two years, directors could be held liable to pay most of it themselves.

No longer will the ATO have to serve a DPN to the director personally – now it can also be served to their registered tax agent. In some circumstances associates or relatives of a director may also be affected.

“Many small businesses have family members or friends as directors,” Mr McAlpine said. 

“They need to get legal advice to make sure they know their duties and liabilities under these new rules.”

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