Am I liable for old tax debts as a new director?

The 30 day rule in plain terms

The law gives a new director a short grace period. On the day you are appointed, you are not liable for the company's old PAYG withholding, GST or SGC debts. If the company has not done one of the following within 30 days, you become liable for them:

• paid the amounts in full;
• appointed a voluntary administrator;
• appointed a small business restructuring practitioner;
• begun to be wound up.

The ATO's stated position is that resigning within the 30 days does not remove this liability. Once the 30 days have passed, you are treated like any other director for those amounts, and any 21 day notice that follows applies to you in full.

Lockdown applies to inherited debt too

The lockdown rules look at when the company lodged, not at who was a director at the time. If the old BAS was lodged more than 3 months late, or the SGC statement was lodged after its due date, that amount is lockdown for you as well. The only way to remit it is payment.

This is the trap for people who join a struggling company to help turn it around. They inherit the debt on day 30, discover it is lockdown, and find that even putting the company into liquidation does not remove it from them personally.

What to check before you accept a directorship

Before your name goes on the ASIC register, or in the first few days after, these are the questions that matter:

1. What does the company's ATO running balance account show, for every tax type?
2. Are all BAS and SGC statements lodged, and were they lodged on time? Ask for the lodgement dates, not just the amounts.
3. Is employee super paid up to date, including the most recent quarter?
4. If there is debt, is there a payment plan in place, and is it being kept?

Our guides on company director liability and whether you are personally liable cover the wider picture. If the answers are bad, the 30 days are the window to decide whether the company pays, restructures, or you walk away before the deadline.

If you are already past 30 days

The liability has attached, but that does not mean a notice has been issued yet. What usually helps now is getting lodgements current so nothing further becomes lockdown, working out whether the company can pay the DPN-type debts ahead of others, and getting advice on whether an insolvency appointment inside a future 21 day window would protect the non-lockdown amounts. If you have since resigned, the rules for resigned directors apply, and they are not kind.

What to do next

1. Work out your appointment date and whether 30 days have passed.
2. Get the company's ATO account balance and the lodgement dates for every unpaid BAS and SGC statement.
3. If inside the 30 days, decide with an adviser whether the company can pay, restructure or wind up before the deadline.

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