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IN FOCUS: Director Penalty Notices Return

16 May 2022
The Australian Taxation Office (“ATO”) has the ability to recover outstanding tax debts by issuing a Director with a penalty notice that upon expiry renders them personally liable for the amount indicated on the notice.  Each Director becomes personally liable for the full amount of the debt indicated on the notice.

A DPN is a notice that the ATO can issue to a Director of a company that has unpaid debts.  The ATO can issue one of two types of DPN to make a Director personally liable for a penalty equal to the value of a company’s overdue debts. The debts to which a DPN can apply to include outstanding SGC, PAYG, and GST.

There are two types of DPNs that can be issued which will depend on when the company reported its debts and the type of debt outstanding. The two types of DPNs are:

  • non-lockdown DPNs; and
  • lockdown DPNs.

Non-lockdown DPN

A non-lock down DPN can be issued in circumstances where:

  1. All activity statement lodgements have been made within three months of their due date;
  2. All SGC statements have been lodged within a month and twenty-eight days after the end of the quarter that the contributable amounts relate to; and
  3. Where those amounts remain outstanding.

For those that receive a non-lock down DPN, there are several options available to avoid penalty (and personal liability) if they act (within 21 days of the notice). The following options are available:

  1. Company pays the debt owed to the ATO;
  2. Company appoints a Liquidator;
  3. Company appoints an Administrator; or
  4. Company appoints a small business restructuring practitioner

If one of the above options are not actioned within 21 days of the notice (note – not 21 days of receipt of the notice) then they will become personally liable for the penalty amount. DPNs are sent in the mail as such it is important for Directors to ensure their registered address with ASIC is up to date.

Lockdown DPN

A “lockdown DPN” can be issued in circumstances where:

  1. Activity statement lodgements have not been made within three months of their due date;
  2. SGC statements have not been lodged within a month and twenty-eight days after the end of the quarter that the contributable amounts relate to; and
  3. Where the payment requirements have not been met.

The only option for a director who receives a lockdown DPN is to pay the amount listed or rely on any legal defences to the notice that may be available to them based on the unique circumstances of the Company. Should the amount not be paid or no defences be available, the Director will remain personally liable for the penalty detailed in the lockdown DPN. That is personal liability applies automatically without the elapse of the 21 day period of grace.

The ATO adopted what could be politely described as a minimalist approach to the use of DPNs throughout the COVID period where it shifted emphasis from debt collection to provide assistance to businesses facing COVID challenges

Indications are that the ATO has increased debt collection activities.

  • In late March, more than 52,000 notices warning of imminent DPNs were issued;
  • The ATO has publicly indicated it is issuing 30-40 director penalty notices every day; and
  • The ATO is also proposing to utilise it’s relatively new powers to inform creditor reporting bureaux of significant tax debts.

This measure applies to significant tax debts (in excess of $100,000) where there has been a history of failure to engage with the ATO.

The ATO has suggested these measures are part of an awareness programme to encourage the relevant  tax payers to either make payment or enter into payment plans.

However there will be a cohort of affected businesses for which this will not be a practical option.

Those clients and/or their advisors should consult their Hall Chadwick contact with respect to their debt restructuring options as the window to avoid personal liability for tax debts appears to be closing.

Key Contact

Blair Pleash

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