Author: Atikah Scott
The ATO has recently started targeting company directors by taking an aggressive and immediate approach to tax debt collection. Whilst a lenient approach was taken during the pandemic, strict enforcement measures are now being implemented by the ATO.
What are director penalty notices?
As a company director, you are responsible for ensuring that your company’s tax and super obligations, including pay as you go withholding (PAYGW), GST and super guarantee charge (SGC), are reported and paid on time.
If your company does not pay certain liabilities by the due date, the ATO can recover these amounts from you personally as a current or former company director once a director penalty notice (DPN) is issued.
DPNs outline the unpaid amounts and remission options available. The ATO can recover the amounts by:
- issuing garnishee notices;
- offsetting any tax credits against the director penalties; and
- initiating legal proceedings against directors to recover the director penalty.
If your company has more than one director, the amounts owed are likely to be the same for all directors. When the ATO recovers director penalties, it may do so equally from all the directors, depending on each director’s circumstances.
There are two types of director penalty notices which the ATO can issue:
- traditional notices – 21 days to remit; and
- lockdown notices – immediate remittance.
Remittance of the director penalty
If the unpaid amount of PAYGW or GST is reported within 3 months of the due date, or for new directors, within 3 months of appointment, a traditional notice will be issued and the penalty can be remitted by:
- paying the debt in full;
- appointing an administrator under sections 436A, 436B or 436C of the Corporations Act 2001 (the Act);
- appointing a small business restructuring practitioner under section 453B of the Act; or
- beginning to wind up the company.
If the unpaid amount is reported more than 3 months after the due date, or for new directors, 3 months or more after appointment, a lockdown penalty notice will be issued and the only way to remit the director penalty is to pay the debt in full.
For SGC, remission of the director penalty depends on when the ATO has been notified about SCG amounts. If the unpaid amount of the SGC is reported by the due date for the SGC statement, the penalty can be remitted by doing one of the above.
Important note: If you resign as company director within 30 days of appointment, you will still be liable for the company’s unpaid PAYGW, GST or SGC liabilities that were due before your appointment. Once the ATO issues a DPN, directors have 21 days to:
- pay the corresponding penalty amounts in full; or
- engage with the ATO to negotiate a payment plan for the company debt – the ATO may still offset your personal credits against this debt.
Defence to a DPN
You will have a defence and not be liable for a director penalty if:
- you did not take part, and it would have been unreasonable to expect you to take part, in the management of the company during the relevant period because of illness or other acceptable reason; or
- you took all reasonable steps, unless there were none you could have taken, to ensure the realisation of one of the above remittance options.
If you require more information, advice or if you have received a DPN, please contact our experienced Commercial & Corporate Law team on 02 9669 6333 or via email.