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Directors beware of tough times

When things get tough, directors of family companies may be tempted to delay payment of a tax debt. But that’s dangerous, as directors may be personally liable for company tax debts. Directors of family companies that run a business should keep in mind their duties as directors.

As the economy slows and cash flow tightens, some business owners may “throw caution to the wind” in relation to making their tax payments (such as pay-asyou-go, or PAYG, withholding payments) on time.

Taxation laws provides that a director may become personally liable for unpaid company taxation liabilities. The Tax Commissioner has recently highlighted this point as an important part of the ATO’s Compliance Program. Directors are required to pay the total outstanding PAYG on time or ensure the company has done one of three things:

1. Entered into a payment arrangement with the ATO.
2. Placed under voluntary administration.
3. Appointed a liquidator.

Failure to do one of these three things may result in each director automatically incurring a penalty equal to the company’s outstanding PAYG withholding liability. The ATO does not issue penalty notices without consideration. Whilst they may be thought of as a final warning, there may still be time to act promptly to avoid the penalties, but that time is limited.

Company directors should not delay in responding to a director’s penalty notice. If you receive such a notice please contact our office immediately.