Chasing business debts for a fairer system sees the Australian Tax Commissioner Michael D’Ascenzo setting his sights on superannuation. Now the directors’ penalty regime will see all directors made personally liable for any unpaid superannuation guarantee contributions.
While the Tax Laws Amendment (2011 Measures No. 7) Bill 2011 is designed to target phoenix schemes, the provisions could have serious implications for companies that engage with independent contractors if the Commissioner subsequently determines that contractors are in fact deemed employees for superannuation law purposes.
The proposed legislation extends the current director penalty regime for unpaid PAYG and aims to prevent companies engaging in phoenix activities — liquidating a company with significant debts and transferring the assets of the company to a new corporate entity, generally at significantly less than market value.
The new corporate entity then rises from the ashes to conduct the previous business with the same or similar directors and shareholders.
Importantly, directors will be liable for more than the mandatory 9 per cent superannuation guarantee contribution. They will instead be liable for the superannuation guarantee charge (SGC), which is calculated as follows:
- 9 per cent of each employee’s total salary or wages, instead of just their ordinary time earnings (shortfall amount);
- Interest on the shortfall amount from the beginning of the quarter in which the contribution was required to be made (ie 1 January) until the later of the lodgement of a superannuation guarantee statement outlining the shortfall amount or the 28th day of the second month after the end of the relevant quarter (ie 28 May for the quarter ending 28 March);
- An administration fee for each individual employee currently set at $20 per quarter.
The SGC is not deductible and the Commissioner of Taxation has no discretion to remit all or part of the SGC. Employers cannot contract out of their superannuation guarantee obligations.
The draft legislation gives the Commissioner power to immediately commence recovery without notice of any outstanding superannuation guarantee contributions from directors personally. The amount will be recovered as a director penalty where superannuation guarantee contributions are unpaid and unreported for three months.
The Commissioner will also have the right to issue a notice of unpaid liabilities and commence proceedings to recover that amount after 21 days.
The benefit of the 21-day notice period is that it gives directors the opportunity to extinguish the director penalty by paying the liability, causing the company to pay the liability, appointing an administrator, or commencing the winding up of the company.
If the outstanding superannuation guarantee contributions have not been paid within three months and the director places the company into liquidation or voluntary administration, the director will remain personally liable.
The usual process is for the Commissioner to issue assessments to the company and for the company to either pay the superannuation guarantee charge or object to the assessment.
Making directors personally liable for the superannuation guarantee charge and allowing the Commissioner to commence proceedings immediately is likely to impact on the ability of a company to object to the imposition of the superannuation guarantee charge because of the financial pressure being placed on directors.
If the legislation is enacted in its current form, it will apply not only to superannuation guarantee obligations that arise from 1 July 2011, but will also apply to unpaid superannuation guarantee contributions as at 1 July 2011.
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