From April 1st 2019, directors may be held personally liable for overdue superannuation from the moment it becomes overdue.
The change, which falls under the Treasury Laws Amendment (2018 Measures No.4) Bill 2018, was announced alongside sweeping reforms to superannuation in Australia, such as the introduction of the new protecting your super package which affects how superfunds manage accounts.
Previously, directors who did not pay their super on time were granted a 3 month grace period. This was particularly relevant for struggling businesses claiming Safe Harbour. By deferring super obligations for a few months, capital could be directed elsewhere that may provide the business with a higher chance of survival.
However, the amendment removes this option, leaving directors immediately and personally liable for superannuation debts that aren’t paid on time (generally within 28 days of the end of each quarter).
How the change works
The ATO can hold a director personally liable for superannuation and PAYG amounts owing through the Director Penalty Notice (DPN) regime.
Previously, companies could report their superannuation and PAYG amounts within 3 months from the end of the quarter. Now, they have 28 days to report super (PAYG hasn’t changed).
If the company reports the amounts owing but fails to pay on time, the ATO can issue directors with a “non-lockdown notice”.
This means the company has 21 days to pay or enter into voluntary administration or liquidation before it reverts to a “lockdown notice”.
If the company neither reports on time nor pays on time, the ATO can issue a lockdown notice immediately, based on their own assessment.
Even directors who have resigned within the previous quarter can be issued a notice. New directors may also be held personally liable for the unpaid debts if they don’t take action to resolve them within 3 months.
Directors may dispute an assessment, or argue a legitimate defence (such as illness or not managing the company when the debts were incurred) which could reduce or cancel the penalty.
Actions directors should take
If a business is solvent and financially viable, paying tax and super obligations should be the first priority. This not only protects the future of the business but the director’s personal assets as well.
However, if the business can’t make these payments, directors are likely to be trading while insolvent. This exposes them to a high risk of personal liability unless they work with a qualified restructuring specialist to develop a turnaround plan.
With the introduction of this new Bill, it is even more crucial to identify and implement smart strategies that either help the business recover or wind it up with the least impact to directors.
To speak with a restructuring and recovery expert at RSM, contact your local RSM office.