The australian taxation office, director personal liability and sg amnesty failure amid the covid-19

It has been all hands on deck from all levels of government providing stimulus and law changes to allow business and individuals to manage the devastating financial and economic impact that is the Coronavirus pandemic.

As, what feels like an endless lockdown and discussion around Jobkeeper, Jobseeker, Cash flow boost etc, continues, company directors and their advisors should be starting to focus on what the future looks like when restrictions may start to ease.

One key aspect to consider is the personal liability facing directors in relation to their Australian Taxation Office (“ATO”) liabilities and Superannuation.

Whilst the federal government temporarily changed the laws around insolvent trading, the reduced ability for creditors to take action to wind up companies and bankrupt individuals and the ATO’s apparent relaxing its immediate debt recovery procedures, all of which are welcomed, there is an underlying exposure that the debts due to the ATO and Superannuation will become personal liabilities of the directors by operation of law.

Here is the reminder about the recent law changes and how the Director Penalty Regime works.

If a director fails to report to the ATO in respect of PAYG, and as of 1 April 2020, Goods and Services Tax (“GST”), Wine Equalization Tax (“WET”) and Luxury Car Tax (“LCT”) within three months of the due date of the lodgment, the director will become personally liable, by operation of law, for the debts incurred.

Please refer to our previous blog on this topic here.

For GST, WET and LCT this only relates to debts incurred after 1 April 2020, but for PAYG the law has been in effect for years, accordingly it would relate to debts incurred in the previous quarters.

In order to recover the debts the ATO would have to issue a director penalty notice (“DPN”). Please refer to our previous blog relating the operation of DPN’s here.

That blog also details how the three month period for lodgment was eliminated for Superannuation Guarantee Charge (“SGC”) debts.  This resulted in the requirement for directors to lodge the requisite SGC Statements for any Superannuation shortfall period by the due date, which is one month after the Superannuation was due.

Alarmingly in the current context, employers who have not paid their Superannuation for the quarter ended 31 March 2020 by 28 April 2020 are now required to lodge an SGC statement by no later than 28 May 2020 to avoid personal liability for that debt.

The SGC forms can be found at this ATO link. Alternatively lodgments can be made via the ATO Portals.

The SG Amnesty

For those company’s that have outstanding SGC obligations prior to the last quarter all is not lost.  On 6 March 2020 the legislation relating to the SG Amnesty received Royal Assent.  Originally introduced on 24 May 2018 the bill had to be re-introduced after the first one lapsed as a result of the federal election.

The SG Amnesty allows employers with an SG shortfall to register and provide the details to the ATO without the application of the administration component ($20 per employee per shortfall period) or any Part 7 penalty (up to 200% of the outstanding liability).

The SG Amnesty operates from 6 March 2020 to 7 September 2020.  After this time, the SG Amnesty will not be available.  Employers seeking to register should do so at via the ATO website page.

The SG Amnesty also provides that payments made in respect of SG liabilities are tax deductible. Ordinarily this would not be the case and the employer would lose the benefit of this deduction.

Employers that had already been paying SG liabilities after 24 May 2018 which had not been deductible will now be deductible for the payments made for registered employers.  Refunds can be issued for the resulting amendments.

Now this sounds fantastic, and in the pre Coronavirus world it was, but here is the kicker:

Despite COVID-19 the ATO has confirmed that there will be no extension to the SG Amnesty (correct as at 5 May 2020).

Only payments made during the SG Amnesty in relation to SG debts will be deductible.

The ATO has confirmed that it is willing to engage and enter into payment arrangements where appropriate, however the deductibility will be lost for payments beyond 7 September 2020.

Additionally given that payments will be beyond the SG Amnesty period you will need to seek formal confirmation that the Part 7 Penalty and Administration charges will be forgone / remitted.

Employers with outstanding SG obligations should be contacting their accountants to conduct a review immediately as disclosures beyond 7 September 2020 will not be afforded Amnesty, deductibility and are unlikely to achieve remission of the SG liabilities.

This crisis is still in its infancy and there will be significant challenges to be faced in the coming months and beyond.  Businesses should be speaking to their external accountants and advisors regularly to best navigate this crisis and employ strategies that will see them survive and thrive.

As always, should you wish to discuss this or any other matter, do not hesitate to speak to anyone of our five registered liquidators.