Directors warned: ATO cracks down using new director penalty laws

Company directors must lodge their tax returns even if they can’t pay them, an expert is warning as evidence suggests the ATO is beginning to crack down on directors under new personal liability laws.

The new laws, effective since June, make directors personally liable for tax debts and unpaid superannuation guarantee amounts, if they remain unreported.

Cliff Sanderson, liquidator at Dissolve, says small businesses need to ensure they’re lodging their returns as soon as possible in order to rid themselves of any possibility they could be pinned with personal liability.

“Be afraid,” he warns.

“Even if you can’t pay the tax man, just lodge your return, and you’ll automatically miss out on the personal liability.”

This is because the laws only apply to unpaid debts that go unreported. Sanderson says the ATO will contact you about your unpaid debts, but you will have foregone the personal liability.

Sanderson says while he doesn’t know how many directors the liability laws will affect, he notes there are 10,000 insolvencies a year and more than half those cases would involve PAYG returns more than three months past due.

“There is no limit how far back the ATO may wish to go. So, if the ATO chooses to use the new laws to their full extent, the potential targets for director personal liability is probably well over 10,000.”

“We have already seen the ATO use the new powers to pursue directors for PAYG that accrued in 2009 and 2010.”

Sanderson says businesses need to act quickly. He warns to respond to penalty notices within 21 days – and in drastic cases, explore insolvency options.

“If reporting is out of date, a liquidation won’t guarantee the director won’t hear from the tax office again, but it is their best chance.”