As a company director in Australia, you’re tasked with significant responsibilities and obligations, including ensuring the business complies with its tax obligations. One of the most important aspects of this responsibility is being aware of Director Penalty Notices, a tool used by the Australian Taxation Office (ATO) to hold directors personally liable for certain unpaid company taxes. This article will explain what DPNs are, how they work, and what directors can do to avoid personal liability.
What Is a Director Penalty Notice (DPN)?
A DPN is a legal notice issued by the ATO that allows the ATO to recover from a director personally certain unpaid liabilities of a company. These debts include:
- Pay-As-You-Go (PAYG) withholding amounts
- Superannuation Guarantee Charge amounts
- Goods and Services Tax amounts
The ATO can pursue directors for these debts when the company fails to meet its tax obligations. The DPN, issued in the form of a notice, informs directors that they are responsible for the outstanding amounts and outlines the steps they can take to avoid or mitigate the liability.
It is important to note that the DPN is not what makes a director liable for the amounts, it is merely a step in the recovery process. A director is liable for the unpaid amounts from the moment the obligation to pay arises on the company.
Types of Director Penalty Notices
There are two types of DPNs that the ATO issue:
1. Non-Lockdown DPN
A Non-Lockdown DPN is issued when a company has reported its Business Activity Statement (BAS) within 3 months of its lodgment date but has failed to pay. In this case, directors can avoid personal liability by taking one of the following actions within 21 days of the date of issue of the DPN:
– Causing the company to pay the outstanding amounts;
– Placing the company into voluntary administration;
– Appointing a small business restructuring practitioner (SBRP); or
– Appointing a liquidator to wind up the company.
Note that these steps must be taken within 21 days of the date of issue, not the date that the DPN was received.
2. Lockdown DPN
A Lockdown DPN is far more severe. It is issued when the company has failed to lodge its BAS within three months of the lodgment due date or pay superannuation obligations to its employees. Superannuation liabilities will always be Lockdown DPNs. In this case, remission of the DPN is only possible by causing the company to pay the liabilities. Even if the company is placed into liquidation, voluntary administration or appoints a SBRP, the liability remains.
Consequences of Ignoring a DPN
If a director fails to act on a DPN within the 21-day period of the issue date, the ATO can take enforcement action, including:
- Garnishee orders to recover funds from the director’s bank accounts.
- Legal action to recover the unpaid debts.
- Bankruptcy proceedings if the debt remains unpaid.
In the case of a Lockdown DPN, directors have fewer options, and the ATO is likely to pursue the debt more aggressively.
What to Do If You Receive a DPN
If you receive a DPN, don’t ignore it. Act quickly by seeking legal and financial advice. Determine whether the notice is a Lockdown or Non-Lockdown DPN, and explore your options. Depending on the situation, this may involve:
- Negotiating a payment plan with the ATO.
- Appointing a SBRP, voluntary administrator or liquidator.
- Working with professionals to settle the debt.
Final Thoughts
DPNs are a serious tool used by the ATO to enforce tax compliance and ensure payment of company liabilities. As a company director, staying informed about your obligations and taking proactive measures is essential for protecting both your business and personal finances. By understanding how DPNs work and taking steps to meet your tax obligations, you can avoid personal liability and the stress that comes with it.
You should consider checking your address with ASIC to ensure that mail is received at the correct address in a timely manner. If you use an accountant’s office as your address, ask them what their process is for actioning DPNs they receive. Not receiving a DPN in the mail is often not an excuse or defence to a DPN.
If you’re concerned about the risk of receiving a DPN or have received a DPN, contact us to discuss your options.
This article is intended for informational purposes only and does not constitute legal advice. Always seek professional advice tailored to your specific situation.
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