What happens if I don’t pay my super or GST?

Having worked with all sorts of businesses over the years I feel comfortable in saying that some company directors aren’t always fully aware of what the role actually means from a liability perspective and this is concerning because it can mean significant personal hardship if things aren’t handled just right.

Setting aside issues of insolvent trading and personal guarantees, one key area where company directors might find themselves in personal grief is in relation to unpaid debts to the ATO and amounts owing to employees for their superannuation. Under the Director’s Penalty regime the ATO can issue penalties directly to the company directors as a way of recovering these debts rather than simply chasing up the company which may or may not have any money to give.

So, what debts are covered?

Currently the regime applies to unpaid PAYG withholding and superannuation entitlements of company employees and contractors. Recent legislation (passed 5 February 2020) has now added unpaid GST into the regime. This means that if the company has any unpaid PAYG(W), super or GST the company directors can be held personally liable for these amounts. The law doesn’t currently allow for other amounts owing to the ATO (e.g. Fringe Benefits Tax or income tax), but I wouldn’t be surprised to see these added to the list before long.

What could happen if I don’t pay?

If the ATO determines you have unpaid liabilities they will issue some or all of the directors with a Directors Penalty Notice (DPN) which is a notice of personal liability for the director(s). These notices can be issued as soon as a debt becomes overdue and can arrive with little or no warning, meaning that BAS that was a day overdue could, in theory, result in a DPN being issued. You either need to pay up, fight the decision or expect to have your account potentially garnished and/or be taken to court.

And what if I quit my role as a director?

If the debts were incurred whilst you were a company director then resigning from your role won’t stop the ATO from chasing you for the debt. The regime also applies to new directors who are only given 30 days (!) to review the books of the company for unpaid debts and resign, otherwise pass than 30 day mark and those debts are your debts too.

I’m super clever and don’t lodge my BAS, so I can’t get hit, right?

Wrong. Failing to lodge the relevant paperwork doesn’t meant the ATO won’t chase you – the ATO are able to make estimates of unpaid amounts and issue a DPN for the estimate.

The best advice we can give here is:

  • Get proper advice before signing on as a director of a company (including people who act as a director without being formally appointed)
  • Keep good accounting records (preferably in Xero!)
  • Lodge your activity statements on time, every time
  • Understand your superannuation obligations (including for contractors)
  • Pay your superannuation on time, every time
  • If you can’t pay your liabilities, call the ATO and explain the situation
  • If the ATO won’t play nicely, you should speak with an insolvency expert

If you have trouble keeping on top of your bookkeeping or lodgements, why not get in touch with our bookkeeping team? They are experts in Xero and all things small business and would love to help.