What is a Directors Penalty Notice (DPN)?
A DPN refers to an ATO issued notice for unpaid tax liabilities which directors can become personally liable for.
As we enter into the recovery phase of the pandemic, the ATO is recognising the resumption of debt collection and reinforcing this among Australian businesses significantly in 2022.
The ATO may issue a DPN where there are overdue or unpaid tax debts and no reasonable steps have been taken to minimise or pay the debt.
Unpaid tax debts include outstanding:
Income tax
If your company is struggling to pay tax liabilities, seek advice immediately.
Any applicable penalties
Goods and services tax (GST)
Pay as you go (PAYG) liabilities
Interest
The ATO will send the DPN to the address registered with ASIC. Therefore as a business owner you must ensure the company’s registered address is up to date with ASIC.
Non-lockdown vs Lockdown DPNs
- Non-lockdown DPNs are issued when business activity statements (BAS), SGC, and/or instalment activity statements are lodged within 3 months of their due date, yet PAYG withholding and/or SGC debt remain outstanding.
- Lockdown DPNs are issued when the above statements have not been lodged within 3 months of its due date.
Have you received a DPN?
If so, obtain legal advice immediately. There is a 21-day time limit from the date listed on the DPN to pay the penalty stated or it becomes personal. The ATO has powers to recover unpaid liabilities not only via the company, but also through its directors.
If you receive a non-lockdown DPN, you can:
- Pay the debt; or
- avoid personal liability by going into liquidation or voluntary administration within 21 days.
If you have received a lockdown DPN, you cannot avoid liability by placing the company into liquidation and must either:
- pay the debt;
- negotiate a payment arrangement with the ATO; or
- file for personal bankruptcy.
If you do not take action within the 21-day time limit, the ATO has broad powers of enforcement to recover the penalty, including garnishee notices, offsetting any tax credits, and/or initiating legal recovery proceedings against a director personally.
Personal liability of new directors
Within 30 days after a new director is appointed, they should satisfy any remaining outstanding responsibilities or else they might be held accountable for director penalties.
Individuals nominated as directors after the tax due date are considered new directors within the DPN regime and should ensure the adequacy of internal processes for timely tax payments.
Resigned director’s liability
Director resigning after the initial date may still be held liable for penalties equal to the net GST, unpaid PAYG and SGC liabilities that were due before and after resignation in certain circumstances.
Following resignation, a director may be liable when the first withholding event in the reporting period took place after the resignation (for net GST and PAYG) or the charge became payable (for SGC liabilities).
What to do right now?
Protect your business from the unexpected.
Engage an accountant to keep up to date the statements and income tax returns.
If your company is struggling to pay tax liabilities, seek advice immediately.
Deal with any unpaid tax liabilities rather than continuing to accrue further debt.
Ensure the company’s registered address is up to date with ASIC. Ensure someone is checking that address for any important notices.
Strive to improve your knowledge of GST and tax reporting practices and ensure implementation of compliance mechanisms
If you need accounting or legal advice, contact us today to arrange an appointment with our local experts.