Currently directors can be held personally liable for PAYGW and superannuation under a Director’s Penalty Notice (DPN) from the ATO. These DPNs come in two forms, which are commonly referred to as lockdown or non-lockdown. The difference between the two is whether the obligation has been reported within a specified timeframe. It has often been said that the ATO operate under the principle of a “sporting chance”. So, if the obligation has been reported within the appropriate timeframe they have had the chance to pursue the recover of the debt. However, if the obligation has not been reported within the required timeframe they have not had this chance.
Under a non-lockdown DPN directors could remit their liability if they take one of the following actions within 21 days of the date of the notice;
So, if the PAYGW or superannuation had been reported within the required timeframe the director could avoid personal liability if they took one of these actions. However, if the obligation had not been reported the penalty would lockdown, and the only way for the director to avoid personal liability would be for the company to pay the amount owing.
For those people that are familiar with how DPNs work they would be aware of what is known as the three-month from due date rule. The timeframe for reporting PAYGW and superannuation had to be within three months from the due date. There has now been a very significant change in these timeframes.
The Treasury Laws Amendment (2018 Measures No. 4) Bill 2018 gained royal assent on 1 March 2019. This specifically addresses the reporting timeframes for superannuation regarding whether a DPN is either lockdown or non-lockdown. There has been no change for PAYG and the three-month from due date rule continues to apply.
The new law eliminates the three-month from due date rule for superannuation reporting. This means that the superannuation obligation must be reported by the due date for the director to have any opportunity to remit the penalty. This is a hugely significant change that we think a lot of professional advisors may be unaware of at this time.
The new law comes into effect on 1 April 2019 – April Fool’s Day – but this is no joke. This is a significant tightening of the laws around superannuation and could potentially see directors exposed to even more personal liability. The really scary thing is that many directors may be familiar with the three-month rule, but may not know of this important change.
The key take-home message here is make sure your clients are aware of this change and always report their superannuation by the due date, even if the company cannot pay at that time. Unless they do this, they may be exposing themselves to greater personal liability.
Feel free to contact us if you would like to discuss this issue in greater detail, or if you would like help communicating this to you team.