Director Penalty Notices (DPNs) serve as a serious mechanism employed by the Australian Taxation Office (ATO) to ensure that directors fulfil their company’s obligations.
As a director, you are responsible for ensuring the company meets its tax obligations, which include, keeping lodgements up to date, Pay As You Go withholding, Superannuation Guarantee Charge or GST.
The DPN outlines the director is personally liable for the penalties that are equal to the unpaid funds. Understanding the scope and implications of these notices is crucial for maintaining compliance and safeguarding personal financial interests.
The ATO has previously announced an increase in the issuance of DPNs as part of its strategy to enforce tax compliance more rigorously. The ATO has expressed a commitment to take “strong and deliberate action” in debt collection, signalling a more assertive stance on recovering tax liabilities from companies.
This heightened enforcement underscores the importance for directors to be vigilant in their tax affairs to avoid personal liabilities.
This article explores the immediate steps Directors should take and the options available for addressing these notices.
Immediate Steps After Receiving a DPN
You have 21 days to react after receiving a DPN. Even if you resign as a company director within the period, you will still be liable for the company’s unpaid PAYG withholding, net GST or SGC liabilities that were due before your appointment.
1. Expert advice
Navigating the complexities of a DPN can be challenging, particularly in understanding the legal and financial implications. Directors are strongly advised to consult with a tax professional or legal advisor who specialises in tax disputes and debt management. These professionals can provide crucial guidance on the best course of action, whether it’s challenging the notice, arranging for payment, or considering more drastic measures like administration or liquidation.
2. Review the notice thoroughly
Upon receiving a DPN, directors must first thoroughly review the document. Understanding the specifics of the debt, the amount owed, and the deadlines for action is essential. The notice will detail what the ATO claims have not been paid and provide a timeline within which the director needs to act to avoid personal liability.
3. Verify the information
Directors must verify the accuracy of the information in the DPN. They should check their company’s records to confirm whether the debts listed on the notice are correct and align with their internal records. Any discrepancies should be noted and prepared for discussion with a professional advisor or the ATO.
4. Contact the ATO
Opening a line of communication with the ATO is a critical step for directors. If there are any disputes regarding the validity of the claims, these should be discussed directly with the ATO. Effective communication is crucial to prevent the situation from escalating to more severe consequences.
Options Available to Resolve Notice Issued
1. Paying the Debt
The most straightforward way to resolve a DPN is by paying the outstanding amount. Full payment of the debt promptly upon receiving a DPN absolves the director from personal liability associated with that particular notice.
2. Appointing an Administrator or Liquidator
If the company is unable to pay its debts and the DPN is a “non-lockdown DPN,” which provides the option to Directors to appoint an Administrator or Liquidator, directors might consider appointing one. This action needs to be taken within the stipulated time frame (usually within 21 days from the issuance of the DPN). Taking such a step can help limit personal liability, as it demonstrates an effort to responsibly manage the company’s financial issues under professional guidance.
3. Dispute Resolution
If directors believe that a DPN has been issued incorrectly, they have the right to dispute the notice. This might involve providing evidence that the reported debts are incorrect, that they have already been paid, or that the director was not responsibly involved in the management of the company at the time the debts accrued.
Understanding Director Penalty Notices
Director Penalty Notices serve as a serious reminder of the responsibilities directors hold in managing their company’s tax obligations.
With the ATO’s increased enforcement, directors must be more proactive in addressing these issues.
Directors can better navigate the complexities of DPNs by understanding the types of debts covered, the implications of personal liability, and the options available for resolving these issues.
Moreover, implementing preventive strategies, such as enhancing accounting systems and conducting regular audits, will safeguard against future tax compliance problems.
At SALEA Advisory, we are committed to helping directors understand and manage their tax obligations effectively. Please contact us for further guidance or to discuss specific concerns.
