After two years of debate on how to curtail fraudulent phoenix activity– where a company is used to intentionally accumulate debts and is then placed into voluntary administration or liquidation to avoid paying those debts – new laws came into effect in June 2012 intended to stamp out the activity. They will also increase personal liability risks for company directors.

What’s changed?

The new legislation includes the following changes:

• The director penalty regime now applies to unpaid Superannuation Guarantee payments (SGC) which means directors will be personally liable for unreported and unpaid SGC from the quarter ended 30 June 2012
• Where three months has lapsed after the due date for the PAYG Withholding or SGC liability and the liability remains unreported and unpaid, directors can no longer avoid personal liability by placing their company into administration or liquidation
• In addition to the address recorded with ASIC, the ATO will now be able to send a copy of a Director Penalty Notice (DPN) to a director’s registered tax agent
• Directors and their associates may effectively be denied the benefit of PAYG Withholding credits on personal salaries where their company has an unpaid PAYG Withholding liability

How will the changes impact directors?

Clearly the new legislation increases the personal tax liability risk for company directors in a number of ways, through exposure to personal liability for unpaid SGC and recovery of unpaid PAYG Withholding on personal salaries.

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