Directors personally liable under new ATO legislation

When a company struggles, there are plenty of creditors knocking at the door. However new ATO legislation extends the personal liability of directors for unpaid super and PAYG for their staff, making them a priority in who gets paid first.

Recent changes to tax legislation has increased the ability of the Australian Tax Office to recover debts owed to the ATO in the form of PAYG and debts owed to staff in the form of super from a director’s personal assets. The head of corporate and commercial at TurksLegal, Pieter Oomens, said these changes have meant that the ATO can seek out unpaid superannuation and PAYG from a director.

“Having achieved these changes the ATO will not hold back,” Oomens predicted.  “Directors need to understand what these new tax laws mean for them and given that some of the changes will have a retrospective effect they need to put their corporate houses in order.”

The new legislation has extended the current personal liability held by directors by removing possible exit strategies and making time limits stricter. Directors can also no longer avoid personal liability by placing the company into administration or liquidation.

“Although the changes are designed to target directors of companies engaging in ‘phoenix’ activities, the legislative net is cast more widely. Other ‘at risk’ directors would include those who make the mistake of thinking that they can temporarily ease cashflow pressures by using money that should go to meet PAYG and superannuation charge commitments. Like a gambler on a losing streak waiting for things to change, they might end up losing more than they counted on,” Oomens said.

According to credit risk expert Colin Porter, the new legislation will only ensure that unsecured creditors will have less chance of retrieving funds if the company goes into liquidation.

“This will also encourage dodgy directors to create more complex personal and company financial structures in order to avoid payments, again making in harder for creditors,” he added.

“The new legislation will most certainly benefit the ATO, but is a real blow for business.”

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