Directors Liable For Unpaid Tax
Ever since the Australian Taxation Office Ruling in 2012, directors can no longer avoid being liable for their organization’s tax obligations.
What Does Being Liable Mean For You – The Owner of Your Small Business?
If you run your own business, any assets, whether they are in your bank account, your wallet, equity in your home and your freedom are on the line when your taxes go unpaid. Hundreds of thousands of dollars in penalties, prison time and losing your business is not why you’ve started this idea. You’ve put your blood, sweat and beers into building out your ideas and turn them into a thriving and intuitive business. You’re an entrepreneur. You have a dream for your business.
While the ATO has always had the power to hold directors liable for unpaid PAYG withholding tax, in 2012 – the stakes got higher.
Before this time, the company could pay the owed debts and/or be put into administration or liquidation. No longer is this an acceptable form of payment. As a director, you can now be held liable for unpaid superannuation amounts – and after 3 months, your personal finances will be affected.
So let’s assume you have had a cash shortage. Perhaps you are owed a lot of money by debtors. Export income has been held up in red tape or due to quality control issues. Your employees have been paid wages, and you have made an allowance for their superannuation each week. You simply didn’t have the cash at the time, and are waiting for things to balance out.
Right in the middle of this, your monthly or quarterly BAS falls due. You knew it was coming, it is simply a matter of timing. Your bank will not extend credit. You get in touch with the ATO. The response is blunt. It is due now. Failure to pay will result in penalties. Somehow things don’t improve as fast as you had hoped; you are now 3 months in arrears and unable to pay. This is where things get cruel, the penalties harsh.
Your assets will be liquidated if you cannot pay the debts in a cool three months. There are potential civil and criminal penalties for the solely responsible company director. Up to $220,000 in fees and five years in jail time just for not paying your taxes!? Yep.
How Can You Avoid This From Happening To You?
There are several things you can do to avoid these penalties, number one is paying your taxes on time. Keeping detailed records of income and expenses is also important. Most importantly, you need to get ahead of the money, and that’s why you hire a professional.
Many people put off paying their taxes. Many people simply forget. Many file incorrectly. That’s where a professional comes in. It’s SO important to get in front of these penalties. Once you’re facing penalties, it’s going to be a long road. The ATO outstanding payment accrues interest, and if you are due a refund, this will be used to pay down the debt also. More from the ATO website >
A professional can ensure that you compliant with the law at all times whilst you pay what you owe. In the long run, this is how you keep the most money in your pocket without risking criminal charges. If you want to avoid the hard line the ATO takes on you as a director and continue to run a profitable business; one that you can grow old with – or sell profitably, remember the you’re the entrepreneur – we are the tax accountants; here to help you with tax. >