Changes to Director Liabilities: Understanding Your Exposure
If you are a company director, the Federal Government is introducing tougher personal liability measures as part of a new director penalty regime.
You have been warned.
In essence, the legislation broadens director liabilities to now include GST, luxury car taxes and wine equalisation taxes. It will also make company directors personally liable to the ATO in certain circumstances for their organisation’s debts in those areas and others.
This is in addition to PAYG and Superannuation Guarantee Charge liabilities. Directors are obligated to pay correct amounts and on time. These were brought in some time ago and are liabilities directors will face if their companies or organisations fail to comply.
This means it is imperative company directors pay close attention to many factors, including but not limited to the following:
- How data is collected,
- Company cash flow,
- How their business activities statements are prepared and
- An understanding of general financial health of the company’s GST liabilities and payments.
Directors need to understand their potential exposure to personal liability. One way to do this is to establish a system of internal controls and measures to manage and maintain compliance. In addition to refining internal management, this will provide a level of personal comfort for any director.
Directors of large organisations should be particularly wary of the introduction of liability for GST. This imposes extremely high amounts of personal liability upon directors if taxes are not paid on time and properly. Directors will also be personally liable (likely jointly and severally) for any illegal or fraudulent GST activity liability of their employees and managers.
The reasoning behind the new legislation is the ATO has fallen victim to directors who deliberately put companies into liquidation prior to remitting GST.
Also, we note that the government has flagged the introduction of a new director identification number system. This will see directors allocated an unique identification number (DIN) to protect Australian businesses from directors who are looking to avoid responsibilities. As a result, government agencies (such as the ATO and ASIC) will be able to keep a watchful eye on particular movements by directors.
Whilst only a small percentage of directors deliberately set out to defraud the ATO, the impact on the economy and on trust is significant.
It is prudent that directors come and see us to get your affairs in order, for asset protection and to control and for compliance measures.
Please see us for a health check. Feel free to call Michael Fetter, Phillip Leaman or Felicity Simpson to discuss further.
