What you should know about issuing Director Penalty Notices |
Posted: February 22, 2018 |
In our world today, many people prefer entrepreneurship to employment. Of course, these two areas sometimes blend into each other. For example, we’re all familiar with the stereotype of the ‘hipster millennial’. Rather than laying roots and settling into a long-term job, they prefer a migrant existence. They couch surf or survive on Airbnb. The regular members of this group will rely on contract work, moving from job to job or state to state with no permanent address. The more adventurous ones will seek experiences across borders, working remotely while traversing the globe and touring third world paradise. In some ways, these youngsters are their own bosses, but in others, they are ‘employed’. They don’t necessarily see it that way, but even if they’re freelancing, their clients are now their bosses. A freelancer can set their own hours, but they are still somewhat bound by their clients’ demands. And this phenomenon is not restricted to backpackers under thirty. There are plenty of people who start their own businesses with this same vision. They might be youngsters with a killer app, or travellers who found opportunities in unserved industries. These pioneers are sometimes serial in their endeavours. They start a business with the intention of growing it to a certain level then selling it off, before rinsing and repeating. There are lots of valid ways to do this, and not all of them are legal. Studies suggest that the average business takes five years to break even, while few survive past the three-year mark. Unfortunately, some serial entrepreneurs have found a way out of this: phoenix activities. This is when a company deliberately collapses itself due to its inability to pay debts. The directors then use the assets of the failed company to build a new company, just like a phoenix rising out of the ashes. Under ordinary circumstances, it’s expected that a serial entrepreneur would use resources from a failed business venture to start over. However, what makes it a phoenix action is that the prior company was intentionally sunk in order to avoid paying dues. Usually, the biggest debt such a company faces is its tax obligation. This tax requirement falls into two categories. The first is the SGC (Superannuation Charge). This is a mandatory government-led pension plan intended to take care of former employees once they reach retirement age. Every business is required to pay superannuation, which is sometimes matched by the employees themselves. If the employee elects to match their bosses’ superannuation contribution, then they increase their retirement savings. The second tax requirement for any business is the PAYG (Pay As You Go). This is a tax levied on business earnings. It’s reported and collected once a year, and is a percentage of business proceeds. The smart way to approach SGC and PAYG is to set aside funds for it every month. These funds can be deposited into an interest-earning account and extracted every year during tax season. However, many businesses neglect to do so, and spend all their earnings unwisely. Because many businesses are set up as limited entities, the taxman can’t personally pursue a director for the unpaid taxes. So if he or she is intent on phoenix activity, they will simply shut down the business, thereby evading the taxes, suppliers, and other debtors. The ATO (Australian Tax Office) has made a move to foil this kind of unscrupulous dealing. Companies usually have a grace period of 3 months to meet their tax obligations. The ATO sends the director a notice to pay the SGC and PAYG that they owe. If the director is dishonest, he uses this three-month period to liquidate the company, thereby avoiding their taxes and preventing creditors and employees from receiving their dues. Fortunately, the tax system has now changed, allowing the ATO to seek taxes owed from the director, even after the company has been liquidated. Under the new law, if the company is unable to pay PAYG and SGC, the director can be issued a Director Penalty Notice that requires him or her to pay the back tax. The director can only avoid this penalty if he or she:
If a company aims to avoid liability by appointing new directors, they may not get away with it. Within 30 days of being appointed as a director, the new director becomes liable for debts and tax obligations. These legal amendments are aimed at protecting suppliers, employees, and creditors from phoenix activity, as well as maintaining revenue sources for the ATO. To avoid getting into tricky situations, pay your PAYG and SGC on time, and within reason and escape debt collection agency Sydney or Melbourne.
|
|||||||||||||||||||||||||||||||||||||||||||
|