Director Penalty Notice: What You Need to Know
If you are a current or former director of a company, and that company does not meet its GST, PAYG, super guarantee charge obligations or other liabilities at a time when you are a director, the Australian Tax Office (ATO) may recover these amounts from you personally as director. In order to recover these amounts, the ATO will issue you with a Director Penalty Notice.
When may I receive a Director Penalty Notice (DPN)?
The ATO is able to issue a DPN when a company has lodged its Business Activity Statement (BAS) or Instalment Activity Statement (IAS), but the company has not paid its tax debt.
What will the DPN contain?
The DPN will outline the amounts owing to the ATO by the company as well as the remission options available to you. The DPN will state that you are personally liable to pay a penalty to the ATO that is equal to the unpaid PAYG or SCG amounts owed by the company.
What should I do if I receive a DPN?
If you wish to avoid personal liability for the debt, you must do one of these three things within 21 days of the date listed on the notice:
- Arrange for the company to pay the outstanding debts;
- Place the company into voluntary administration; or,
- Place the company into liquidation.
What is a Lockdown DPN?
A lockdown DPN applies when the company has not lodged a BAS or IAS to the ATO within 3 months of their due date. Where this is the case, you cannot avoid paying the penalty by placing the company in voluntary administration or liquidation. You will either need to pay the amount owed by the company to the ATO within 21 days, or else rely on one of the available defences. These defences are explored further below.
What are the possible consequences of a DPN?
If the above actions are not undertaken within the 21-day time limit, the ATO may recover the amount owing by the company from you personally via a number of different means, including:
- Garnishee notices;
- Initiating legal proceedings against you to recover the penalty; or,
- Offsetting any of your tax credits against the director penalties.
If you do not believe that you should be held personally liable for the company’s debts, there are a number of defences that may be available. These include:
- You did not take part in the management of the company during the relevant period due to illness or other accepted reason. This refers to situations where it was unreasonable to expect the director to take part in the management of the company at that time, including the need to care for an ill spouse or child (or conceivably a pet).
- You took all reasonable steps, unless there were no reasonable steps available, to ensure that one of the following occurred:
- The company paid the outstanding amount;
- An administrator was appointed to the company; or,
- The directors began winding up the company.
- If, in the case of an unpaid SGC liability, the company treated the Superannuation Guarantee (Administration) Act 1992 as applying in a way that could be reasonably argued was in accordance with the law.
If you choose to proceed with one of the above defences, you must be able to prove this defence for the entire period that you were under the obligation.
It should be noted that it is not a defence to say that as a director you relied on others, including fellow directors and professional advisors, to ensure your obligation was met.
I am no longer a director of the company. Why did I receive a DPN?
The ATO can issue a DPN to a person who was a director of the company during the time when the debt arose (when, for example, the amounts were withheld from the employees’ wages for PAYG withholding obligations). You can therefore still be issued with a DPN once you have resigned as director.