Safe harbour and tax debt: why unpaid super and late lodgements can undo it

What is safe harbour?

Directors have a duty not to let their company trade while insolvent. If they do, they can be personally liable for debts incurred during that time. Safe harbour is an exception designed to encourage genuine turnaround attempts: a director who starts developing a course of action that is reasonably likely to lead to a better outcome for the company than immediate administration or liquidation can be protected from insolvent trading liability for debts incurred in connection with that course of action.

In practice, safe harbour usually involves working with an appropriately qualified adviser on a turnaround plan, keeping proper records, and actively pursuing the plan.

What are the conditions involving tax and super?

ASIC’s Regulatory Guide 217 explains that a director can’t rely on safe harbour if, while the protection is being relied on, the company is failing to:

• pay the entitlements of its employees that are due and payable — and that includes superannuation contributions; or
• comply with its lodgement obligations under the taxation laws.

Minor or isolated lapses are treated differently. But a failure to substantially comply, or repeated failures within a 12-month period, can remove the protection. Put simply: if super goes unpaid or BAS lodgements slip, the safe harbour you thought you had may not be there.

Obligation	What safe harbour needs
Wages and super	Paid when due — under Payday Super, within 7 business days of each payday for super
BAS, IAS and returns	Lodged on time
PAYG withholding and GST payment	Not a condition of safe harbour itself — but unpaid amounts carry director penalty risk

Why doesn’t safe harbour stop director penalties?

Because they’re different regimes. Safe harbour sits in corporations law and deals with insolvent trading liability. Director penalties sit in tax law and make directors personally liable for unpaid PAYG withholding, GST and SGC. A director in safe harbour can still receive a DPN, and the only ways to remit it are the four outcomes in the tax law — pay in full, appoint an administrator, appoint an SBR practitioner, or begin winding up — with payment the only option for lockdown amounts.

This catches people out. A turnaround plan that protects you from one form of personal liability can leave you exposed to another. See director penalties.

Why does funding often sit inside a turnaround plan?

Many safe harbour plans aim to stabilise a company that has a viable core business and a debt problem. Clearing ATO debt can be central to that:

• paying super keeps a safe harbour condition intact;
• paying PAYG withholding and GST removes director penalty exposure;
• clearing the ATO account stops garnishee notices and credit reporting that would undermine supplier and customer confidence.

A property-secured or unsecured loan, structured with the turnaround adviser’s input, can do all of that. Property-secured loans run from $20,000 to $5,000,000; unsecured options typically run from $5,000 to $500,000. Where arranged, the ATO is paid directly at settlement. We’re happy to work alongside your accountant or turnaround adviser — we don’t act as one ourselves.

What should a director in safe harbour watch weekly?

1. Super paid within 7 business days of every payday.
2. BAS and other lodgements on time.
3. Records complete and up to date.
4. Progress against the turnaround plan, documented.
5. Any ATO notices — DPNs especially — dealt with immediately.

When is safe harbour not the answer?

If there’s no realistic path to a better outcome, safe harbour isn’t designed to keep a company trading indefinitely. At that point, advice from a registered liquidator you’ve checked on ASIC’s professional registers is the right call — and the free Small Business Debt Helpline (1800 413 828) can help you prepare for that conversation.

Be cautious about who’s advising you

Safe harbour requires advice from an appropriately qualified person. ASIC notes that the pre-insolvency industry is unregulated and advisers have varying qualifications and experience. Ask about qualifications, registration, fees and professional indemnity insurance before you rely on anyone’s advice. Our questions to ask any adviser list is a good start.

How does safe harbour interact with funding decisions?

If you’re relying on safe harbour while pursuing a turnaround, any new borrowing should be part of the plan your adviser is helping you develop, not a separate decision made under pressure. Questions your adviser will likely consider with you:

• Does the loan make a better outcome for the company more likely than immediate administration or liquidation?
• Can the company meet the repayments alongside wages, super and new tax?
• Does paying the ATO protect the safe harbour conditions — for example, by clearing super that’s due?
• What happens if the turnaround doesn’t work?

We’re happy to provide figures and terms in writing so your adviser can assess them properly.

Documenting the turnaround

Safe harbour relies on directors being able to show what they did and when. Keep board minutes, cash-flow forecasts, adviser reports and evidence of entitlements and lodgements being kept up to date. If funding is part of the plan, keep the loan offer, the reasons for accepting it and how it supports a better outcome.

Does your turnaround plan need ATO debt cleared?

If you’re a director working through a turnaround and clearing ATO debt is part of the plan, see if you qualify. There’s no credit check to enquire, your details stay with us rather than being sent to a list of lenders, and a real person will work with your adviser to see whether funding fits. Please give accurate figures for super, BAS and any notices.