Businesses’ obligations under single touch payroll
We have written about single touch payroll in the past, including about some of the benefits it will have for small businesses. But for businesses that are not complying with their obligations to pay PAYG Tax and superannuation, single touch payroll will make it easier for the ATO to take recovery action.
Since 1 July 2018, businesses with over 20 employees have been required to report various information to the ATO each time they pay employees, including:
- Employee details;
- Gross wages;
- PAYG Tax withheld; and
- Superannuation payable.
This obligation comes into effect for businesses with 19 or fewer employees from 1 July 2019.
Related obligations for superannuation funds
Superannuation funds are also now required to report to the ATO:
- Member information; and
- Contributions made to the fund by employers in real time.
What does this mean for the ATO?
The ATO will now know in real time if your business isn’t paying PAYG Tax and superannuation. Therefore, it will be in a position to immediately follow up late payments of PAYG Tax and it has advised that it “will compare the amounts you report with information we receive from super funds. If we identify your contributions vary significantly from the liability reported, we will contact you”
What else can the ATO do?
The ATO will be able to take recovery action more quickly if PAYG Tax and superannuation are not paid. This will include:
- Issuing Director Penalty Notices;
- Issuing a Garnishee Notice to a business’s bank account or another party holding money on behalf of, or payable to, a business; or
- Making an application to Court to place a company in liquidation.
Significant Director Penalty Notice risk for directors
Because of single touch payroll the ATO is now better placed than ever to know when a company is failing to pay PAYG Tax and superannuation. This significantly increases the risk of company directors receiving Director Penalty Notices which can make a director liable for a company’s PAYG Tax and superannuation debts.
The ATO can issue the following types of Director Penalty Notices:
- If a company fails to pay PAYG Tax or superannuation but it lodges Activity Statements or SGC Statements within the required timeframes set out below, the ATO will be able to issue Director Penalty Notices to the company’s directors. The directors will be able to avoid liability if the PAYG Tax or superannuation is paid or if the company is placed in liquidation or voluntary administration within twenty-one days of the date of the Director Penalty Notice.
- However, if a company fails to pay PAYG Tax or superannuation and it also fails to lodge Activity Statements or SGC Statements within the required timeframes set out below, the directors are automatically liable for unpaid PAYG Tax or superannuation and the only way the directors can avoid personal liability is if the company ultimately pays the outstanding debts.
These types of Director Penalty Notices are commonly called lockdown Director Penalty Notices and they can be and are often issued after a Liquidator is appointed.
The required timeframes for lodging Activity Statements to avoid lockdown Director Penalty Notices is within three months of the Activity Statement being due for lodgement. For unpaid superannuation, the ATO has recently shortened the period for lodgement of SGC Statements in order to avoid lockdown Director Penalty Notice liability to the Due Dates set out below:
Given that the ATO is now aware of a company’s PAYG Tax and superannuation debts in real time, company directors and their advisors need to be more vigilant than ever to ensure that:
- PAYG Tax and superannuation is paid; or
- Where it is not paid, Activity Statements or SGC Statements are lodged within required timeframes to avoid lockdownDirector Penalty Notices.
If they are not, directors will become liable for their company’s debts to the ATO, which can have serious financial consequences including leading to bankruptcy.
Advice and assistance
Given the serious effects the above provisions may have on businesses and company directors’ personal financial positions, business owners should obtain appropriate advice and assistance if a company is failing to pay superannuation or PAYG Tax.