Where an individual carries on business as a sole trader or as a partner in a partnership, they are held personally liable for debts incurred while carrying on the business (as well as personal income tax liabilities). As such, the ATO does not require special collection powers to hold principals liable for taxation liabilities incurred by sole traders or individual partners. A similar outcome applies where an individual acts as the trustee of a trust that carries on business (although the individual trustee has a right to be indemnified out of trust assets). On the other hand, where a business is being carried on by a company (including a company in its capacity as trustee of a trust or as a partner in a partnership), the director penalty notice (‘DPN’) rules contained in Division 269 of Schedule 1 to the TAA 1953 may apply to make company directors personally liable for the following taxation liabilities of the company (in circumstances of non-payment by the company): • PAYG withholding amounts; • superannuation guarantee charges; • net GST liabilities (including luxury car tax and wine equalization tax); and • estimates of the above liabilities. Previously, the Commissioner could only issue a DPN in respect of PAYGW and SGC. However, with the Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019 having received Royal Assent on 17 February 2020, the Commissioner now has the power to issue a DPN to recover unpaid GST. Note that the legislation refers to an “assessed net amount” for a tax period, which not only includes the net amount of GST (i.e., GST less input tax credits) but also includes Luxury Car Tax (‘LCT’) and Wine Equalisation Tax (‘WET’). GST instalments are also included. Directors must also be mindful of providing personal guarantees for the company, which reduce the level of asset protection offered by the company, as personal guarantees directly place the directors’ personal assets at risk in the event of the company’s failure. Section 269-15(1) provides that the directors’ obligation commences on the ‘initial day’ for the relevant amount. The ‘initial day’ is: • for PAYGW – the day the company withholds the amount • for SGC – the last day of the relevant quarter (e.g., 31 March, 30 September); or • for estimates – the day the estimate was due and payable (note that this has been changed to (generally) the last day of the period to which the estimate relates, as discussed below). The expanded DPR applies to: (a) net amounts and assessed net amounts for tax periods that start on or after 1 April 2020; and (b) GST instalments for GST instalment quarters that start on or after 1 April 2020. The estimates regime has also been expanded so that the Commissioner can now make an estimate of a net amount of GST (or LCT or WET) that has not been assessed. An estimate can be made in respect of the tax periods noted above. The directors’ obligation remains in place until such time as the company complies with its obligation (to pay the relevant amount to the Commissioner) or, alternatively, an administrator or a small business restructuring practitioner is appointed, or the company commences to wind-up. If, at the end of the ‘due day’, the directors are still under their obligation to ensure the company pays an amount to the Commissioner (i.e., none of the things mentioned above have happened), then any person who was a director at any time (even for one day) during the period commencing from the ‘initial day’ and ending at the ‘due day’ is liable to pay the Commissioner a penalty equal to the unpaid amount of the company’s liability under its obligation. The penalty is due and payable at the end of the due day. If a person ceased to be a director before the ‘initial day’ for an amount, they will not be liable for a penalty in relation to that amount. However, it is important to note that, if a person becomes a director after the ‘due day’, and none of things referred to above have happened 30 days later, they will be a liable for a penalty. The penalty is due and payable at the end of the 30th day. What if a director resigns during the 30 days period? It is crucial to note that, even if a person is appointed as director after the due day but then ceases to be a director before the 30 day ‘grace period’ is up, they will still become liable for a penalty.
Recovery of penalty
To recover the penalty, the Commissioner must give a notice (referred to as a ‘Directors Penalty Notice’ or ‘DPN’) to each director setting out the amount of the unpaid liability of the company, as well as the ways the penalty can be remitted. The Commissioner must then wait 21 days before he can commence recovery proceedings. However, the Commissioner cannot take recovery action if a payment arrangement is in place under S.255-15. It is important to note that a DPN is taken to be given at the time the Commissioner leaves it or posts it. That is, the 21 days starts from this time and not from when the director receives the DPN. Remission of penalty A director’s penalty will be remitted if the directors cease to be under their obligation before the end of the 21-day period. This will only be the case where an administrator or a small business restructuring practitioner is appointed, or the company commences to be wound up in that 21-day period. Lock-down penaltiesIn some cases, a director’s penalty is ‘locked down’. This means that, if the company does not notify the Commissioner of the amount of its liability within 3 months after the ‘due day’, there is no course of action that can be taken to cause the penalty to be remitted, i.e., it is ‘locked down’. For example, if the 3 months has passed without notification having been made, appointing an administrator, or commencing to wind-up the company will not cause the penalty to be remitted. Despite the above, there are some limited circumstances in which a director will not be liable for a penalty, as follows: • if, because of illness or for some other good reason, it would be unreasonable to expect the person to take part, and they did not take part, in the management of the company at any time they were a director; • the person took all reasonable steps to ensure the company complied with its obligation, appointed an administrator or a small business restructuring practitioner, or wound up (or there were no reasonable steps they could have taken to ensure any of those things happened); or • in the case of SGC, the company took a position that was reasonably arguable. The onus is on the director to prove the relevant matters for a particular defence. Whilst the facts and circumstances vary for each director, directors arguing a defence before the Courts have typically been unsuccessful in the past. This article is reference to ATO’s Director Penalty Notice and other related articles. This article is for informational purposes only and does not form part of our advice. Please contact our team if you need any assistance. Claire Chang, 0497 131 419, email@example.com, wechat: clairechang26 Michelle Cui, 0433 539 870, firstname.lastname@example.org, wechat: michellejc
A not-for-profit (NFP) organisation is an entity that is operating for its purpose and not for the profit or gain (either direct or indirect) of its individual members. NFP organisations fall within two broad categories: • charities, and • other NFP organisations that are not charities, for example: most sporting and recreational clubs, community service organisations, professional and business associations, and social organisations. Charities must register with the Australian Charities and Not-for-profits Commission (ACNC) before they can be endorsed by ATO for tax concessions or apply for certain categories of deductible gift recipient (DGR) status. Other NFP organisations that are not charities may be able to self-assess whether they are income tax exempt or taxable and whether they will have access to other tax concessions. They will need to be endorsed by ATO to obtain DGR status. Legal Structures The legal structure you choose should meet your organisation's needs now and into the future. The organisation's legal structure will affect many things, such as: • its legal identity (whether it can be sued) • its governance structure (who makes what types of decisions) • who is liable for its debts and its specific responsibilities • what its reporting or other compliance obligations are. Legal structures commonly used by NFP organisations include unincorporated associations, incorporated associations, companies, cooperatives, Indigenous corporations, and trusts. Different legal structures have different reporting requirements and tax obligations. Tax Concessions Depending on the type of NFP organisation, different tax concessions are available and the process for accessing each concession varies. Charities: must be endorsed by ATO to access charity tax concessions. Other NFP organisations: can generally self-assess – that is, work out for themselves – whether they are entitled to tax concessions.The tax concessions NFPs may be entitled to access include: • income tax exemption • fringe benefits tax (FBT) exemption or rebate • goods and services tax (GST) concessions • deductible gift recipient (DGR) endorsement • refund of franking credits. To access various concessions and comply with your organisation's tax obligations, your organisation may need to register for an Australian business number (ABN), GST, FBT, pay as you go (PAYG) withholding, fuel tax credits or other taxes. Deductible Gift Recipients (DGR) When you receive donations to support your organization, your supporters can claim a tax deduction if you have been endorsed by ATO as a deductible gift recipient (DGR). All organizations, including charities, must be endorsed by ATO as a DGR if they want their donors to be able to claim a tax deduction. Registration process To register your NFP organization follow these steps: 1. Determine / understand your legal structure. 2. Determine if you are an NFP. 3. Register your organization with the Australian Government to obtain an Australian Business Number (ABN). At the same time, you can also register for Goods and Services Tax (GST), Fringe Benefit Tax (FBT), Pay As You Go (PAYG) withholding if your organization requires it.
This article is for informational purposes only and does not form part of our advice. This article is based on Australia Taxation Office guideline. Please contact our team if you need any assistance. Claire Chang, 0497 131 419, email@example.com, WeChat: clairechang26 Michelle Cui, 0433 539 870, firstname.lastname@example.org, WeChat: michellejc
Land tax grouping is different in different states, this article is based on Victorian state situation. Under the Land Tax Act 2005 of Victoria, corporations are related corporations in certain circumstances. Where two or more corporations are related, they may be treated as a land tax group. If corporations are grouped, the land holdings of each corporation in the group are combined and assessed as if they were a single land holding owned by a single corporation (i.e. land tax is calculated on the total taxable value of all land owned by members of a group as if it were a single piece of land held by a single company). Members of a land tax group are jointly and individually liable for the land tax payable by the group. As such, State Revenue Office can recover the land tax payable by the land tax group from any member of that group.
Land Tax Grouping