As the Government seeks to maintain its budget surplus, it is highly likely we will soon see an increasing amount of Director Penalty Notices (DPN) being issued by the Australian Taxation Office (ATO).
Why are DPN so important?
A Director Penalty Notice (DPN) allows the ATO to pursue directors personally for unpaid and reported/unreported Superannuation Guarantee Charges (SGC) and Pay as You Go (PAYG) liabilities.
It allows the ATO to pierce the corporate veil, meaning directors are no longer protected by a company’s corporate structure.
Extension of the DPN to now include GST
In the most recent Budget announcements in February 2019, the Treasury Laws Amendment (Combatting Illegal Phoenixing) Bill 2019, announced that DPN’s will also be issued for unpaid and reported/unreported Goods and Services Tax (GST). Further information can be found by referring to the following link ATO Consultation – Illegal Phoenix Behaviour.
Why would the ATO issue a Director Penalty Notice?
- Historical non-reporting;
- Significant ATO debt which remains unpaid;
- Suspicion of phoenix activity.
It is important that directors pay close attention to their company’s reporting and payment obligations to ensure they don’t get caught out. In some cases, where companies are of a larger size, directors may not have direct oversight regarding the company’s tax compliance obligations. It is crucial to emphasise the potential consequences of non-compliance to all key personnel of your business and make them aware of this regime.
Two types of Director Penalty Notices
Non Lockdown DPN
If PAYG or SGC is unpaid but reported to the ATO, the director penalty can be remitted by:
- Having the company, or another party, pay the outstanding amount;
- Appointing an administrator;
- Placing the company into liquidation
An option needs to be implemented within 21 days from the date of the DPN to receive a remission of the director penalty.
Lockdown DPN
If PAYG or SGC is unpaid but not reported to the ATO, the director penalty can only be remitted by paying the outstanding debt. Payment of the outstanding debt needs to be made within 21 days from the date of the DPN.
New directors
If you have recently been appointed as a director of a company you can be held personally liable for historical SGC, PAYG and GST liabilities if they remain unpaid and unreported within 3 months or more after the date of your appointment. New directors should take the necessary steps to ensure their companies’ SGC, PAYG and GST obligations are in order before their appointment.
It is critical that all directors (new and existing) update their personal details with the Australian Securities and Investment Commission (ASIC) to ensure they receive DPN as soon as possible. Directors only have 21 days from the date a Director Penalty Notice is issued to act and avoid personal liability.
It is important that directors start taking steps now to ensure that their tax, superannuation and GST obligations of their companies are in order. Don’t get caught out!