Company structures are excellent for conducting business; they can provide asset protection, limit liability for shareholders (i.e. the “owners” of the company), provide flexibility for growth and succession planning, not to mention the capped income tax rate. However, the rules for a company and the reporting requirements are complex and, if directors miss a beat or get it wrong, the penalties for directors personally can be huge.

Director IDs

Directors are now required to have a personal Director ID. With an initial deadline of 30 November 2022, the ATO had provided an extension of time to 14 December 2022 for directors to apply for a Director ID. If a director has failed to obtain an ID by now, they can be liable for penalties up to $13,200.

Past Tax Lodgements

Directors can become personally liable for the company’s historic tax and superannuation debts, such as non-payment of PAYG, GST and Superannuation. Even newly appointed directors, who had no involvement with the company when it incurred the debt, have only 30 days from their appointment to deal with any historic tax and superannuation debts before they can become personally liable.  Even if a director become aware of the debts after their appointment and resigns immediately, they are still liable for any unpaid tax debts which were due before their appointment. And there is no “sharing of liability” between directors; the director penalty for each director is equal to the full amount of unpaid tax debts.

If you are offered a director role or otherwise acquiring a company, check if the company has any unpaid or unreported tax or superannuation liabilities.

Outsourcing your officeholder functions to an external agent

Directors have a range of responsibilities, including keeping up to date with the company’s finances, actively participating in director meetings and understanding how decisions will affect the company’s performance, amongst other things.

It may be beneficial to outsource some tasks to external agents, rather than doing it all yourself. However, delegating tasks does not delegate your responsibilities and duties as a director. Even if someone else is doing a task assigned by a director, the director is still responsible for complying with all director duties and legal requirements.

If a director outsources some tasks to an agent and they make a mistake, the director may have a claim for negligence, but ultimately the director is still responsible.

If you are unsure about your director duties or if this article has raised any questions or concerns for you, please don’t hesitate to get in touch with Lynn & Brown Lawyers.

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