G'day, folks! If you're a company director in Australia, it's time to perk up and pay attention. The Australian Tax Office (ATO) has ramped up its efforts, issuing a record number of Director Penalty Notices (DPNs) to tackle outstanding company liabilities, which have ballooned to over $2.5 billion. In the 2022-23 financial year alone, over 20,000 DPNs were issued to directors. So, let’s dive into what this means for you and how you can navigate these waters.
As a company director, you’re on the hook to make sure your company stays on top of its pay-as-you-go withholding tax (PAYGW), goods and services tax (GST), and superannuation guarantee charge (SGC) obligations. If your company drops the ball on these, you can be held personally liable for any unpaid amounts through a DPN.
If your company is behind on its tax or super payments, the ATO can issue a DPN, effectively landing you with a personal penalty equal to the unpaid amounts. There are two types of DPNs you need to know about: non-lockdown DPNs and lockdown DPNs.
If your company has lodged its Business Activity Statements (BAS), Instalment Activity Statements (IAS), and/or SGC statements within three months of the due date but still has outstanding amounts, you'll get a non-lockdown DPN. You’ve got 21 days to sort things out by either paying up, negotiating a payment plan, appointing a voluntary administrator, or a liquidator. If you act within this window, the penalty can be "remitted" (cancelled).
Fail to act, and the penalty becomes permanent, and the ATO can come after you with garnishee notices, offset your tax credits, or even take legal action. So, don’t dilly-dally!
Now, if your company hasn’t lodged its BAS, IAS, and/or SGC statements within three months of the due date, you'll face a lockdown DPN. This one’s a bit trickier—your only option is to pay the full amount. Placing the company into administration or liquidation won’t help you dodge this bullet; the debt sticks until it’s paid off in full.
Even if you’re new on the job, you’re still in the hot seat for any unpaid taxes that were due before your appointment, unless you get the company to pay its debts or go into administration within 30 days of starting. Resigning within those 30 days won’t get you off the hook either.
Got a DPN? Don’t panic just yet. There are a few defenses you might be able to use:
Illness: If you were too crook to participate in the company’s management and it was unreasonable to expect you to do so, you might be off the hook.
All Reasonable Steps: If you took all reasonable steps to make sure the company paid its debts, appointed an administrator, or started winding up, you might have a defense.
Reasonably Arguable Position: For SGC and GST liabilities, if the company had a reasonably arguable position on how the relevant laws applied, you might have a case.
The courts have set a high bar for these defenses—you’ll need to cover the entire period of the company’s liabilities and show you didn’t just rely on others to handle things.
If the ATO comes knocking with legal proceedings, you can raise your defense in court. If they go another route, like issuing a garnishee notice, you’ve got 60 days to submit a written defense to the ATO. Make sure you include all the necessary information and supporting documents to back up your claim.
Source:by Macpherson Kelley