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Director Penalty Notices and Personal Liability in 2022

Director Penalty Notices and Personal Liability in 2022

Director Penalty Notices and Personal Liability in 2022

As the ATO moves on from the leniency of recent pandemic practices, it’s time to make sure you address outstanding company tax debt.
The Australian Tax Office is adopting more active attempts to recover what companies owe—including changes to Director Penalty Notices (DPN), employed less frequently during the height of the pandemic.
Bankruptcy Advisory Centre has been helping Australian companies with expert advice throughout every stage of COVID19’s impact on business. If you have received or may receive a DPN, reach out now.

The DPN Program

Debt recovery looks set to be a focus of the ATO over the coming months, and changes to the DPN program mean you risk personal liability if a company’s tax debt is not dealt with during the allocated period.
A DPN is formally issued by the Australian Tax Office. In March 2022, the ATO informed thousands of company directors of potential personal liability for company debts.
Dated from when the ATO sent your DPN notice to your home address on record, you have 21 days to address the issue. Our expert team ensures you and your company use the time window wisely.

Receiving Director Penalty Notices

A key change in the DPN program is the removal of a payment plan option after a (Non-Lockdown) DPN has been issued. As a Company Director, it’s important to understand how this change impacts you.
Company Directors could previously avoid personal liability of company tax debt via this avenue. Now, if a lack of ATO engagement leads to a DPN, the adjusted DPN responses mean an increased risk of personal liability.
A DPN is best avoided where possible, and when received, best addressed ASAP. If your company has a growing tax debt, try to get ahead of the issue by seeking specialist input.

What leads to a DPN?

There are different types of DPNs. The one you receive is reliant on your company’s outstanding ATO paperwork and payments. Neglecting such items as BAS and GST risk serious repercussions.
A Non-Lockdown DPN and a Lockdown DPN leave you with different options. A Lockdown DPN requires payment of the amount owing. In some cases, you can argue a defence. (Illness is one example.)
A Non-Lockdown DPN allows four ways to deal with a company’s outstanding tax debt: full payment, entering administration, choosing liquidation, or undergoing business restructuring, known as SBRP.

Evaluating your response

We advise speaking to our debt experts before deciding on the best path. If liquidation or administration is the viable choice, we will clearly outline what this entails and help you navigate the chosen process.
If your goal is to repay the outstanding tax debt without rendering your company unable to continue, we also suggest a consult with one of our experienced teams to avoid creating a new debt crisis.
Choosing the Small Business Restructuring Process involves appointing a Small Business Restructuring Practitioner. Bankruptcy Advisory Centre can assist and begin by explaining what the SBRP entails.

The reach of a Director Penalty Notice

While you may be a recently appointed Director or have since resigned, be aware that a DPN may still be administered. Even during liquidation or voluntary administration, a DPN is a possibility in some cases.
Does your company have multiple Directors? If in the best financial position of all your company Directors, the ATO does legally have the option of issuing a DPN to you, as the goal is to regain the tax debt.
Suspicion of illegal phoenix activity may lead your company to a DPN. The Australian Securities & Investment Commission offers clarification of what qualifies as illegal phoenix activity in Australia.

Avoiding inducing a DPN

A DPN is a complication you don’t need. It limits options and forces your hand. Instead, consulting a BAC debt advisor at the first signs of trouble can save you future financial headaches.
The best way to reduce the potentiality of a DPN is proactivity around company tax debt. But while you may survive in the short-term, business restructuring could be needed to avoid a DPN in the future.
With the possibility of new COVID-19 variants impacting future performance, your business should ideally be able to function under pressure. A healthy company debt structure will better weather the storm.

Consult with BAC

It is clear that 2022 will be a changing financial environment for many companies. As an Australian owned and operated firm, we truly understand where you stand and the situations you may face.
With the breathing space afforded by ATO during the early days of the pandemic now coming to a close, Company Directors must engage with the ATO as soon as possible to address tax debt.
Now is the time to seek expert advice. Don’t wait until a DPN forces you into action. At Bankruptcy Advisory Centre, we listen and help your company forge a path forward. Contact our team today.

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