Tips to avoid the brunt of a Director Penalty Notice
A Director Penalty Notice (DPN) is a way for the Australian Taxation Office to collect unpaid Pay-As-You-Go (PAYG) tax and superannuation liabilities of companies directly from directors. This means the directors are personally liable for these charges.
The impacts of a DPN can be crippling both to a company and its director/s, and in some cases leads to bankruptcy.
While there is no opportunity to avoid this liability once the DPN is served, here’s how you can act now to protect yourself:
- Pay required amounts of PAYG Tax to the ATO by due dates.
- Lodge Business Activity Statements (“BAS”) with the ATO each quarter (or lodge monthly Instalment Activity Statements) reporting the amount of PAYG Tax payable to the ATO.
- Pay superannuation contributions for employees by due dates.
- If the company fails to pay superannuation contributions by due dates, lodge a Superannuation Guarantee Charge Statement (“SGC Statement”) with the ATO.
- If you company is facing financial difficulty, obtain professional advice at an early stage.
- Make sure directors’ postal addresses are up to date in records maintained by the ASIC. Non-receipt of a Director Penalty Notice due to a change of address is not a defense to a claim by the ATO.
So how do you know if you are subject to a director penalty notice and what can you do about it?
The best way to simply answer this is by asking: Have you lodged your PAYG returns and/or Superannuation Guarantee Charge within three months of the due dates of these documents? If you’re not sure, you’re best to speak with a qualified professional.
What do I do if I receive a Director Penalty Notice?
First and foremost, be sure to act promptly in obtaining advice from a qualified professional. There are quite a few options available to you, but you only have 21 days from the date the DPN was issued to take action and avoid personal liability.
If you become liable under a Director Penalty Notice then the ATO will treat your liability just as it would treat any ordinary tax debt payable. The ATO can and commonly will:
- Commence legal proceedings against you and obtain a Judgment for the amount of the debt.
- Use the Judgment to issue a Bankruptcy Notice and then subsequently make you bankrupt.
- Garnishee funds from your bank account or from your wages.
Who can you talk to for more information and support?
Given the serious effects the Director Penalty Notice regime may have on company directors’ personal financial positions, directors and their advisors should obtain appropriate advice and assistance.
If you are seeking advice or assistance regarding a Director Penalty Notice, please contact an expert lawyer for an initial obligation-free consultation.