New legislation has recently been passed in Parliament which will result in Goods and Services Tax (GST) now being included in the Director Penalty Notice Regime, effective as of 1 April 2020.
As a result of this, directors of both public and private companies will now become personally liable for outstanding GST debts in the event of non-compliance. The aim of this new legislation is to provide motive for directors to comply with GST requirements, as they are no longer protected by a company’s corporate structure when it comes to GST debt.
What is a Director Penalty Notice?
A Director Penalty Notice (DPN) is a notice that the Australian Taxation Office (ATO) can send to a company director, making them personally liable for tax debt. There are currently two types of tax debt which a director can be made personally liable for. These include:
- Pay As You Go (PAYG) and
- Superannuation Guarantee Charge (SGC).
GST debt will become the third type of tax debt that a director may be held personally liable for.
The now passed legislation makes the new powers of the ATO to pursue GST debt forward reaching only, meaning that only GST debts incurred on or after 1 April 2020 can be chased using a DPN.
This also extends the regime for the luxury car tax (LCT) and the wine equalisation tax (WET), taxes which are paid as part of activity statement lodgements.
It is expected that the same three month lockdown rules that currently apply to PAYG will also be applied to GST. The current lockdown rules state that if PAYG was reported more than three months after the due reporting date (or not at all) then the DPN is considered “locked down”, therefore placing the company into administration or liquidation will not remove the penalty.
What does this mean for directors?
It is now time for directors to be proactive to mitigate the risk of non-compliance. We suggest that there is a review of all director and employment relationships to ensure that key personnel understand the responsibilities and obligations involved in their role. Directors should investigate if all PAYG, SGC and GST obligations are up to date and be sure to understand how the recent changes may impact their business.
It is also suggested that all PAYG, superannuation and GST is reported on time, regardless of whether or not the company is able to pay it.
While this may seem a straight forward increase in personal responsibilities, there is also the possibility that being issued a DPN will affect your credit rating and therefore your ability to obtain finance. The ATO are now required to report amounts exceeding $10,000 that are not under a payment arrangement to any credit agencies.
If you have any questions in regards to the new legislation or want to know if it may affect your business, please give us a call on 03 5443 0344.