Director Penalty Notice

Tax Alert – Company Directors

The Australian Taxation Office (ATO) has started – post COVID – to ramp up its debt collection processes. A Director Penalty Notice (DPN) is a notice from the ATO making a director (or directors) of a company personally liable for the company’s tax debts.

In particular the ATO has begun to issue warnings to directors of companies that they may be served with a DPN.

If you are a director, or former director, of a company the ATO may recover, from you personally, the company’s unpaid;

• Pay as you go (PAYG) withholding,

• Goods and Services Tax (GST); and,
• Superannuation Guarantee Charge.

As a director you are responsible for making sure the company meets its obligations to pay its net GST amounts, PAYG withholding and SGC liabilities, in full, by the due date.

If the company fails to meet its obligations, you will become personally liable for director penalties equal to the unpaid liability.

To avoid director penalties, you should ensure the company lodges and pays on time.

If you are no longer a director, you remain liable for director penalties for liabilities of the company that

• were due before the date of your resignation
• fell due after your resignation when

• for PAYG withholding and net GST (inclusive of LCT and WET), the first withholding event in the reporting period occurred before your resignation
• for SGC liabilities, the date the charge became payable.

To recover director penalties the ATO must first issue a Director Penalty Notice (DPN) setting out the unpaid amounts.

After 28 days from service of the DPN the ATO can issue garnishee notices, offset the liability against any tax credits or refunds the ATO owes you personally and/or initiate legal recovery proceedings against you personally to recover the director penalty.

Satisfying A Director Penalty Notice

The DPN can be satisfied by:

• full payment of the debt
• appointing an administrator under section 436A, 436B or 436C of the Corporations Act 2001
• appointing a small business restructuring practitioner under section 453B of that Act
• the company begins to be wound up (within the meaning of the Corporations Act 2001).

In some circumstance the ATO may accept a payment arrangement of Director Penalty Notices.

For legal advice about Director Penalty Notices contact Gary Watson – Taxation Lawyer at Watson Legal 02 4038 1623.