ATO Steps Up Activity on Collections
We are sure you are aware there has been a lot of press recently about the ATO stepping up its activity in respect to the ongoing collection of tax on a timely and efficient basis. Significantly this is not solely focused on large multinationals but also on private family businesses.
The ATO is flexing its muscles and is now less hesitant in using the full extent of the law available to it. In that respect for potential directors, a due diligence process should be undertaken before taking up a directorship, providing the individual with comfort that all matters are being appropriately dealt with. Directors should not only be aware of the taxation obligations of the company but also of its compliance history and status.
Having an effective management plan in place addressing commercial aspects of the business as well as tax and other compliance aspects provides comfort to the directors. It can also provide a strategic plan for the business and provide protocols to deal with governance matters.
Ensuring the paperwork is completed on time and in an accurate manner is an important but not always glamorous task. The compliance profile of a company (i.e. lodging and paying on time) is taken into account by the ATO in respect of a variety of matters including the decision to undertake an audit or review. As such a good compliance history can reduce your “chance” of a review and can assist in obtaining deferrals of lodgment and payment. Early discussions with the ATO should be undertaken in such circumstances.
Directors should remember that they have a legal responsibility to ensure that their company meets certain tax obligations. As part of the drive to increase revenue the ATO have recently been using director penalty notices to encourage lodgment of outstanding BAS’s and payment of the tax.
A director is potentially liable for the company’s pay as you go (PAYG) withholding and superannuation guarantee charge (SGC) obligations. Importantly, a director is not liable for unpaid GST. The director of a company that fails to meet a PAYG withholding or SGC liability by the due date automatically becomes personally liable for a penalty equal to the unpaid amount.
The director penalty notice will be remitted if the company pays the outstanding amount at any time or in certain other limited circumstances. There is also a 30 day window for newly appointed directors before they become liable to penalties.
There are a number of defences available, however, the onus of proof resides with the director and any action is time critical.
Should you be considering taking on a new directorship, or needing to update your strategic management plan please contact your applicable ESV engagement partner on 02 9283 1666.
Article by David Prichard