The ATO shows no signs of slowing down in its efforts to collect outstanding company tax debts, reportedly issuing an average of 60 DPNs (Director Penalty Notices) per day! As a company director, it is imperative to be acutely aware of your company taxation obligations and liabilities, as certain unpaid company tax debts can become your personal liability.
The important thing to note when it comes to Director Penalty Notices is that the issuing of a DPN is not the initiation of the directors liability. Directors are already liable for any debt by virtue of the law and legislation.
Rather, the issuing of the DPN is the ATO’s way of formally notifying the director that a time limit has been placed on their obligations to promptly comply with any lodgement and payment obligations.
Upon receiving a DPN, directors should take the necessary action to avoid further consequences and penalties.
If you have received a DPN, contact the team of tax accountants and tax lawyers at The Quinn Group right away by submitting an online enquiry form or call us on 1300 QUINNS or +61 2 9223 9166. We can liaise with the ATO on your behalf, and depending on your individual situation, we can work to get your company tax debts and obligations back on track.
Below, you’ll find more detailed information regarding DPNs and options that may be available to you if you receive one.
Directors can be Personally Liable for Company Debts
Being a company director comes with many responsibilities. Not least of which, is the responsibility to ensure that the company meets all necessary regulatory reporting and payment obligations. This includes making sure that all company taxation and superannuation obligations are reported and paid on time.
Many company directors are unaware of the fact that if a company that is under their directorship does not pay certain liabilities by the due date, the ATO can seek to recover these amounts from them personally, as a current or former company director.
Consequently, ensuring company compliance in these areas is not just in the best interests of the business, but something that can have significant impact for you personally as well.
So, what are the important things for company directors to know, and do, when it comes to director penalties and director penalty notices?
What is a Director Penalty Notice?
A Director Penalty Notice (DPN) is a notice issued by the Australian Tax Office (ATO) that allows them to recover certain company tax debts directly from the company directors.
Which debts are captured under the DPN regime?
As a company director, you become personally liable for your company’s unpaid amounts of:
- pay as you go withholding (PAYGW)
- superannuation guarantee charge (SGC)
- net goods and services tax (GST) – including wine equalisation tax (WET) and luxury car tax (LCT)
How do I avoid receiving a Director Penalty Notice?
This one is simple! Ensure that your company is always reporting and paying its PAYG, GST (including WET and LCT) and SGC obligations on time. As long as you do that, there should be no need for you to receive a DPN or take any personal liability for company debts in relation to these amounts.
What should I do if I receive a DPN?
Ideally, the best way to resolve a DPN is to promptly pay the outstanding debt in full.
If that is not possible, you should seek professional advice to discuss the best course of action for your situation.
In the first instance, you’ll likely be advised to complete all outstanding lodgements to the ATO, even if you are unable to make the associated payments. Although you may not be able to repay the money immediately, taking action to meet your reporting/lodgement obligations shows that you are making an effort to remedy the current situation. This may work in your favour when liaising with the ATO about what comes next and can also help to prevent a stricter “lockdown DPN” from being issued (more on this below).
You may then be able to negotiate a payment plan with the ATO, or you may need to consider appointing a: voluntary administrator, small business restructuring practitioner or liquidator.
How long do directors have to act?
As a Director, you have 21 days from the date of notice to act.
It is important to note that the date the ATO post (or leave the DPN at the address registered with ASIC) is considered to be the date the notice is given to you. The 21 days does not start from when you personally receive the DPN.
If you are a current director, the ATO will use the address you registered with Australian Securities & Investment Commission (ASIC). Otherwise, they will use the address last known to them.
For this reason, it is important that you keep your address details updated with ASIC so that in the event of a DPN being issued, you will receive it in a timely manner and have adequate time to act.
What happens if I don’t act within 21 days?
If neither of the above happens within the 21 day time frame, the ATO may recommence action against you to recover the director penalty amounts.
The ATO can recover the amounts of the director penalty by:
- issuing garnishee notices
- offsetting any of your tax credits against the director penalties
- initiating legal recovery proceedings against you to recover the director penalty.
What is a lockdown DPN?
A lockdown DPN is an automatic and permanent directive from the ATO for the director to settle the company debt. The only way to remit (or cancel) a lockdown DPN is to pay the debt in full.
A lockdown DPN is issued when:
- a company does not lodge its BAS (Business Activity Statement) and IAS (Instalment Activity Statement) within 3 months of the lodgement due date. (In relation to PAYGW and GST)
- SGC (Superannuation Guarantee Charge) is not reported by the due date.
That is why it is imperative that lodgement and reporting obligations are met, regardless of if the payment is able to be made. Failing to do this, and triggering a lockdown DPN leaves little options for the business and its director to recover the situation. Whereas, the non-lockdown DPN provides various options to get things back on track.
A director penalty is a parallel liability
If the company has more than one director, the amounts owed are likely to be the same for all directors. This is because the company liability (what the company owes) and the director penalty liability are parallel in nature.
When the ATO recovers director penalties they may do so equally from all the directors, depending on each director’s circumstances.
To recover the debt, the Commissioner can pursue either the company or the directors. This means that any payment or credit applied to the company’s account or to a director’s account to reduce the penalty, will reduce the director penalty amount for the other directors and the company’s corresponding liability for the same reporting period.
Seek Expert ATO & DPN Help. Don’t Delay!
Obviously, the best case scenario is for your company to meet its reporting and payment obligations and avoid triggering director penalties and receiving director penalty notices.
In the event that you have received a Director Penalty Notice or have any concerns about your company reporting and payment obligations, it is important to seek professional advice as soon as possible in order to minimise any further penalties.
Contact the team of experienced tax accountants and lawyers at The Quinn Group by submitting an online enquiry form or call us on 1300 QUINNS or +61 2 9223 9166 to arrange a teleconference or appointment.
