It’s been widely reported that the ATO is increasing its debt collection activity after holding off taking action during the COVID pandemic.
Companies running a business will incur certain tax debts that need to be reported and paid to the Australian Taxation Office (ATO), including PAYG withholding payments and superannuation guarantee payments on behalf of employees, as well as any GST payable by the company. As a director, you are personally liable for these debts if the company cannot pay them.
A director penalty notice (DPN) is a notice from the ATO that a penalty is being issued against you personally for the amount of the company tax debts owed. It provides 21 days for the director to comply with the DPN. This means that if the company cannot pay the outstanding amount, you, as a director, will need to pay the debt to ATO out of your own money and assets; for example your family home.
Types of Director Penalty Notices
There are two types of DPN:-
- Non-lockdown DPN – where the company has reported the obligations to the ATO in the required timeframe (for example, within three months of the due date for BAS lodgement) but has not paid the outstanding amounts; or
- Lockdown DPN – where the company hasn’t paid or reported any of the relevant obligations to the ATO at all and the debt is “locked down” on the director.
If you receive a non-lockdown DPN, there are a number of steps you can take within the 21 days after receiving the DNP to cancel your liability:
- Pay the debt;
- Raise a valid defence for non payment;
- Contact the ATO to negotiate a payment arrangement;
- Appoint a small business restructuring practitioner;
- Appoint a voluntary administrator;
- Appoint a liquidator.
If none of these steps are taken within 21 days, the DPN becomes a lockdown DPN, and the ATO can commence proceedings to recover the outstanding amount against you.
Issuing a Director Penalty Notice
A DPN is issued to the personal address of the director registered with ASIC. The 21-day period starts from the date the ATO posts the DPN and the ATO does not need to show that the director actually received the DPN. It is extremely important to make sure that as a director, your details are correctly registered with ASIC to ensure you receive any notices promptly.
What should you do if you receive a Director Penalty Notice?
Some immediate and urgent steps you should take if you receive a DPN are:-
- Ensure that all of your ATO lodgements are up to date, even if the company is unable to pay the liabilities;
- Review the address details for the company and directors on the ASIC register;
- Contact a lawyer to seek advice about whether you have a valid defence, for example significant illness;
- Contact a qualified insolvency practitioner to review the company’s financial position and your personal financial situation.
The most important takeaway from this article is to BE PROACTIVE. Don’t bury your head in the sand when it comes to your company’s tax obligations. Remember, a DPN can be issued even after a company goes into administration or liquidation. Seek advice quickly and early.
Disclaimer
This article is designed and intended to provide general information in summary form. The contents of this article do not constitute legal advice, are not intended to be a substitute for legal advice and should not be relied upon as legal advice. Please seek legal advice about your specific circumstances.
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ATO debt
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Principal Lawyer
Natalie is Principal Lawyer at FCW Lawyers. With a double degree in law and psychology, she understands the science behind human behaviour. She knows that soft skills can often be the real way to achieve great results for clients. Whether you call it emotional intelligence, empathy or just plain gut feel, Natalie has it in spades – which is invaluable when she’s negotiating outcomes for clients and conducting commercial litigation.
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