Directors’ liabilities and the superannuation guarantee
Directors of failed companies have always been held personally liable for tax withheld from employees’ wages and not remitted on time to the Australian Taxation Office..
In the federal government’s May 2011 budget, Treasurer Swan announced that from 1 July 2011, directors would be held personally liable for their company’s failure to pay guaranteed superannuation contributions.
Under the Superannuation Guarantee legislation, employers are required to forward contributions of 9% of employees’ ordinary wages to the fund chosen by the employee within 28 days of the end of the quarter in which the wages were paid.
If the contributions are not forwarded to the fund in the required time, the Superannuation Guarantee Charge (SGC) is calculated by adding costs from three sources: the outstanding contributions; an administration charge of $20 per employee per quarter; and interest at 10% from the date the contributions were due. The SGC is not tax-deductible to the employer.
Under the proposed new legislation, not only will directors be held personally liable for tax withheld and for outstanding SGC, they will be denied credit for tax withheld from their own salaries. The legislation applies to directors who were directors of the company “at or before” the liability arises.
This legislation is aimed at fraudulent “phoenix” activities conducted by rogue directors. Phoenix activities involve the deliberate liquidation of a company to avoid paying tax and superannuation liabilities. The business then starts up in a new company, which is free of debt, and which is run by the same people or group of people. Often the company has a very similar name. It presents itself to its customers as conducting ‘business as usual’.
However, a fraud has been carried out and the victims are not only the employees who have been deprived of their superannuation and the tax they have paid, but also Australian taxpayers through lost government revenue.
Sources:
www.treasury.gov.au - Exposure Draft - Tax Law Amendments to Strengthen Company Director Obligations and Deter Fraudulent Phoenix Activity