Monthly Archives: October 2011

Directors’ personal liability for company debts

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The 2011 Budget introduced proposed changes to strengthen the operation of penalising directors’ personally for actions in respect of their corporate entities.   These changes were intended to protect worker’s entitlements to compulsory superannuation contributions and to address the situation where directors emerge in “phoenix” companies after having previous corporate entities liquidated.

It appears that these changes extend further than originally anticipated and create an increased liability risk personally for all directors.

These changes may expose directors to personal liability where a company has under-reported PAYG or SG withholding amounts due to it adopting a course of engaging a person as a contractor as opposed to being an employee.

Significant Aspects of the Changes

  • Directors are now to be personally liable for their company’s unpaid SG amounts (which will be in addition to PAYG withholding amounts);
  • The ATO will be allowed to immediately commence recovery action if the company’s liability remains unpaid and unreported 3 months after the due date;
  • Should a company’s liability remain unpaid and unreported for more than 3 months, then a director’s personal liability can only be extinguished by payment of the debt or penalty (i.e. placing the company into liquidation will not be      sufficient);
  • The ATO will have the discretion to prevent directors and their associates from      accessing the PAYG withholding credits on their own salaries if the company has an outstanding PAYG liability;
  • In addition, a new director can become personally liable for the company’s outstanding PAYG and SG liabilities after 14 days from the time they commence as a director of the company; and
  • Directors will be personally liable for their company’s unpaid SG amounts (which will be in addition to PAYG withholding amounts).

Recovery Process for Directors Penalties

Based on these changes it is likely that the ATO would commence recovery and impose penalties on a director where an unpaid liability remains unreported 3 months after the due date.

It would appear that once the 3 months has lapsed the ATO would no longer be required to provide 21 days notice to the director before initiating proceedings and the directors liability can only be extinguished by in fact paying the penalty and therefore extinguishing the underlying liability.

Implications for Directors

Whilst these changes were initially drafted to target “Phoenix” companies it is likely that the provisions will extend further. Directors need to be fully aware of their company’s employee and contractor taxation obligations and the status of any outstanding debts with the ATO. We would recommend that directors review their company’s superannuation obligations in respect of contractors and employees.

Additionally, if you are looking to join a company as a director it would be essential to ascertain the current liability of the company to PAYG and SG liabilities before signing the Consent to act as a director.

For further information about this and other corporate issues, contact Steven Morris via email stevenm@whd.com.au or phone 07 3232 5700.

Changes to Queensland stamp duty explained

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On 1 August 2011 changes were made to the Duties Act 2001 (Qld) which effectively eliminated the previous ‘Home Concession’ scheme.

What is transfer duty and when does it apply?

‘Transfer duty’ is what was previously referred to as stamp duty. Transfer duty is a dollar amount that must be paid on all dutiable property transactions in Queensland[1]. Both parties to a transaction are liable to pay transfer duty, however contractually in just about most situations it is paid by the Buyer. If transfer duty has not been paid by the due date by the Buyer, the Office of State Revenue may in fact bring legal proceedings against the Seller to recover the outstanding debt.

What was the Home Concession scheme and who could claim?

The Home Concession scheme essentially provided some relief, in the form of lower transfer duty, for qualifying home-buyers. The occupancy requirements that were needed in order to claim were as follows:

  • Claimant was a person who was buying a home to live in;
  • Claimant needed to move into the property, as his/her principal place of residence, within one year of the transfer date;
  • Claimant could not rent out the property before moving in;
    • Exception: The Seller or Seller’s existing tenant may remain in possession for up to 6 months after the transfer date;
  • Claimant could not rent out the property after moving in (no exceptions);
  • Claimant must live in the property for 12 months after moving in and must not dispose of part or all of the property (e.g. by renting or selling) within that time frame.

Practical effect of the removal of section 91 Duties Act 2001 (Qld)

The following table compares the transfer duty payable before the amendments to the Duties Act 2001 (Qld) to the amounts payable on or after 1/08/2011 for a property of equal value. The difference is clearly substantial. The table was formed using the Office of State Revenue’s Transfer Duty Calculator.

Value of entire property

Transfer duty payable

before
1/08/2011

Transfer duty payable

on or after
1/08/2011

$300,000

$3,000

$8,325

$400,000

$5,250

$11,825

$500,000

$8,750

$15,525

$600,000

$12,850

$20,025

Source: http://www.mymoneycalculator.com.au/guides/stamp-duty-grants/comparison-of-stamp-duty-rates-in-queensland-qld-australia/

Land -V- Existing House

The other issue that many would-be buyers in the housing overlook, is the benefits of actually buying vacant land and building a new house.  The stamp duty on the vacant land – because it is a lot less expensive - results in a far lower amount of transfer duty.  There is no stamp duty on a building contract for the new house.  In addition, the State Government will provide a $10,000 grant to the buyer towards the cost of having a new house constructed. With the lower transfer duty payable on the vacant land and the $10,000 grant being paid, a buyer in these circumstances is considerably better off financially.

For further information please contact our Property team via email: property@whd.com.au, visit our website or call us on 07 3232 5700.

[1] Office of State Revenue, QLD Government, ‘Transfer Duty’, Accessed 13/9/2011,
http://www.osr.qld.gov.au/duties/transfer-duty/index.shtml