The Income Tax Assessment Act 1997 dictates that all companies must withhold money from their employee’s wages to meet tax liabilities set by the Australian Taxation Office. If you’re an employer you will first have to register for PAYG (pay-as-you-go) before deducting any amounts from their wages. You can withhold PAYG amounts from employees, directors, temporary workers who voluntarily agree to this arrangement and companies that don’t offer you an ABN.
Companies are also obligated to make superannuation payments to their employees. This is also known as Super Guarantee. Eligible employees are entitled to a minimum of 10.5% of their ordinary time earnings. Super payments are generally made every quarter, before the due date set by the ATO, although employers can choose to make payments more frequently if desired. If the super is not paid on time or paid to the wrong account, the employer will have to pay a superannuation guarantee charge and fill out a superannuation guarantee charge statement online.
When employers don’t comply by PAYG and Superannuation payments, they’re served a Director’s Penalty Notice. Laws governing employer contribution have been tightened and those who do not fulfill their legal obligations are pursued by the authorities. Directors who are unwilling to pay the debts they owe may be asked to personally clear the debt amounts. Proceedings to recover the amount owed begin only 21 days after a DPN is served.
There are two types of DPN's issued known as non-lockdown and lockdown DPN's. If an employer lodges business activity statements along with instalment activity statements without paying superannuation guarantee and PAYG, within the due date of lodgement, he will be served a Non-lockdown DPN. This DPN will be cancelled if the employer pays the amount owed within 21 days or the date mentioned in the notice.
Lockdown DPN’s are served to business owners who don’t lodge any business or instalment activity statements within the due date of lodgement. The authorities lock down on directors of such companies and the notice can only be dismissed if the payment is made in full within the time specified.
The Commissioner is required to follow certain protocols to recover the money owed. If the tax is still left unpaid, the ATO serves a garnishee notice to the company’s bank that will have to then clear the debt amount on behalf of the company. Each director of the company has the same obligation to pay the amount declared on the notice.
Directors of companies should update their ASIC records online. They should be aware of their legal obligations towards superannuation contributions and PAYG. They also have to submit business activity statements along with superannuation statements on time.
Those who receive a Director’s Penalty Notice must get in touch with ATO before it’s too late. It could also be helpful to use the services of a professional tax consultation to resolve any issues that are beyond one’s comprehension.
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For more information on business tax debts, check out our tax debt page here.