We have previously written about the dangers of director penalty notices and what can happen if you get one. This is an example of a client who has not yet got a director penalty notice but is liable to get one at some stage from the ATO for over $200,000 and there is nothing he can do about it.
We were referred a client who was a director of a company which ran a large commercial cleaning business. The business had a number of staff and it had over 20 staff when Covid-19 hit in early 2020. However, the business had not been profitable prior to Covid-19 hitting and it had run up a debt of nearly $100,000 for superannuation to its employees and it owed over $500,000 in PAYG Tax and GST.
Unfortunately for our client:
- If a company does not pay superannuation and it also fails to lodge SGC Statements within one month of superannuation being due for payment, the directors are automatically liable for the unpaid superannuation.
- If a company does not pay PAYG Tax and GST and it also fails to lodge Activity Statements within three months of them being due, the directors are automatically liable for the unpaid PAYG Tax and GST. Although, this only applies to GST incurred after 1 April 2020.
- The director was liable for nearly $100,000 of unpaid superannuation and $120,000 of PAYG Tax as a result of the above provisions.
- A future liquidation of the company would not avoid the ATO’s right to issue director penalty notices or our client’s liability.
Was there anything our client could do?
There was nothing our client could do to avoid liability, other than have the company pay the SGC and PAYG Tax debts. However, by the time the company had been referred to us, it was grossly insolvent and that wasn’t a feasible outcome.
What was the outcome?
Unfortunately for our client, the only option was to place the company in liquidation which he did. The ATO has generally stopped taking recovery action due to the impact of Covid-19 but at some stage our client will get director penalty notices for amounts totalling over $200,000. Fortunately for him, he has the ability to pay this amount, but it would be better if he didn’t have to.
What should our client have done?
Our client could have avoided lockdown automatic liability if he had caused SGC Statements to be lodged within one month of superannuation being due for payment and Activity Statements within three months of them being due. If he had done this he could still have got a 21-Day director penalty notice but he could have avoided liability by appointing a Liquidator or an Administrator to a company or using Small Business Restructuring.
Contact us for assistance
If you have a tax debt you should get advice about how to deal with it and the risks involved. We are happy to talk to you for no upfront cost and advise the options available.