Director Penalty Notice and Things You Need to Know

Director Penalty Notice and Things You Need to Know

Directors of businesses are usually protected behind the corporate structures and don’t face the liability of the company’s debts. However, the Australian Tax Office (ATO) has the right to pursue the personal assets of the company’s director if the debt obligations of the company haven’t been fulfilled.

This is done by serving a Director Penalty Notice (DPN) by ATO and if you receive this penalty notice, it is essential to act quickly or your personal assets can be seized. It is advisable to seek professional help to handle this serious issue.

Moreover, it is also essential to be aware of the DPN, ways to avoid it, and steps to take if you receive a penalty notice.

What is a Director Penalty Notice?

The Director Penalty Notice (DPN) is a penalty notice served to the company’s director by the ATO for not meeting the Super Guarantee Charge (SGC), Wine Equalisation Tax (WET), Luxury Car Tax (LCT), Goods and Services Tax (GST), and Pay As You Go (PAYG) withholding.

It is essential for the company to pay its ATO tax debt immediately, otherwise, the director of the company can be personally held liable for the company’s debts through a DPN.

There are two kinds of Director Penalty Notice, which are as follows:

1.    Non-Lockdown DPN

This penalty notice is issued to the company that hasn’t paid the tax liabilities but reported within three months of the deadline to the ATO. In the non-lockdown DPN, the director of the company might be able to avoid being personally liable if the company:

• Puts itself into liquidation,
• Appoints voluntary administrator, or
• Negotiates arrangement to make the payment or pays off the debt.
• This must be done within 21 days of receiving the DPN.

2.    Lockdown DPN

This DPN is issued to the company that hasn’t paid the tax liabilities and failed to report it within three months of the deadline to the ATO. The only way the director of the company can prevent personal liability in the lockdown DPN is to ensure the debts are paid by the company within 21 days of receiving the DPN.

Penalties of Non-Compliance with DPN

If the director of the company receives a penalty notice but no steps are taken, then the director would be personally liable once the DPN expires. The ATO would proceed to recover the SCG or tax debts from the company’s director. These actions can’t be taken without the issuance of a DPN.

The ATO also has the power to taken other actions, like giving garnishee notices, but this can be done whether or not a Director Penalty Notice was issued.

In some cases, the associates of the director and the director of the company would not be allowed to get credits from the amounts withheld in their own tax returns when the company neglected to pay the withheld amounts that were due to the ATO.

The directors of the company, as well as their associates, may also be held liable for non-compliance with PAYG withholding tax.

How to Avoid Being Served a Penalty Notice

The best way to avoid getting a DPN is to not allow the ATO to issue the notice. Prevention is always better than cure. The main aim of the DPNs is to ensure that the directors of the companies pay the taxes, apply for returns, and take the necessary actions if the taxes aren’t paid.

Here are some of the things you can do to avoid getting a DPN:

• Constantly monitor the financial position of the company and ensure that the monthly and quarterly BAS returns were timely lodged.
• Ensure the details of your address with the ATO and ASIC (Australian Securities and Investments Commission) are updated to prevent situations in which you don’t receive any notices.
• If the company is unable to pay the debts for Superannuation and PAYG, be sure to get in touch with an accountant to seek advice.

Monitoring the situation and taking the right actions can help you in avoiding a situation where you could be held personally liable for the company not paying its debts.

I Have Been Served a Penalty Notice from the ATO, Now What?

If you have been served a Director Penalty Notice by the ATO, then there are very few options to get the penalty discharged. In case the company failed to report the unpaid debts to the ATO within three months of the deadline, your only option is to pay the debt to discharge the penalty.

In case the company reported the unpaid debts to the ATO within three months of the deadline, here are some steps to take after getting a DPN:

• Pay the debt in full
• Get an administrator appointed to the company
• Liquidate the company

It is important to take action within 21 days of being served by the DPN. If you don’t take any action, you would be personally liable to pay off the debt of the company in full. This means legal action would also be taken against you by the ATO.

Remember, the countdown starts from the day the DPN is posted and not the day you receive it. This means you might have less than 21 days to take action.

Can a DPN be disputed?

Only a few defences are available for the directors of the company receiving a penalty notice. The only ways you might be able to dispute a DPN are as follows:

• Because of illness or other appropriate reasons, you were not able to participate in the company’s management, or
• All necessary steps were taken by you to make sure the company pays the debts, tried to appoint an administrator, or
• started winding up the company.

You can highlight these defences if legal actions have commenced against you due to a DPN.

How Can Bankruptcy Advisory Centre Help?

Receiving a DPN can be overwhelming for anyone as there could be dire consequences for the company’s director. However, it is integral to take immediate steps to protect yourself. The best thing to do is consult the experts to make sure you take the right actions.

Bankruptcy Advisory Centre has debt experts who can advise you about your next steps depending on your situation. Moreover, our experts can also advise you on how to avoid getting in such a situation.

Paying the debt obligation is essential for every company as it prevents the ATO to take any action against the company and the company’s director. Once a Director Penalty Notice is issued, there is no way to avoid the situation other than to comply.