When you’re a company director, you’re responsible for the company’s tax and super obligations. This, most importantly, includes ensuring you report and pay these obligations on time. If the company does not meet these responsibilities, the Directors will become personally liable and may receive a Director Penalty Notice from the Australian Taxation Office. Here’s everything you need to know about what a Director Penalty Notice is, and what happens if you get one.
What is a Director Penalty Notice (DPN)?
A Director Penalty Notice (DPN) is the notice issued by the Australian Taxation Office that informs a director, or directors, that they are, or may become, personally liable for failures of the Company to pay taxes (including GST, PAYG withholding and superannuation guarantee contributions).
In Australia, directors are legally obliged to ensure the company meets its tax obligations. There are two (2) types of DPN’s which are discussed below. There may be several ways to potentially avoid personal liability following the receipt of a DPN, depending upon the type of DPN issued.
What are the different types of DPN?
Lockdown DPNs are issued to company directors where a company has failed to lodge and pay its business activity statements and/or instalment activity statements within three months of their due date for lodgement. A Lockdown DPN can also be issued in the event that superannuation contributions are not paid to the employees superannuation funds by the due date. In this case, the penalty permanently locks down on the director and there is no ability to remit (i.e. cancel) the penalty, other than by paying the debt in full.
In the event that the liability on the Lockdown DPN is not paid to the ATO within 21 days of the date of the DPN, the Australian Taxation Office can commence formal recovery against the Directors personally for payment, which can result in bankruptcy proceedings.
Non-lockdown DPNs are issued to company directors that have lodged the company business activity statements and instalment activity statements within three months of the due date for lodgment, but the PAYG withholding and/or GST debts remain unpaid.
The notice gives directors 21 days to take certain actions to avoid personal liability, limited to either:
paying the debt; or
causing the company to be placed into voluntary administration; or
causing the company to be placed into liquidation; or
causing a small business restructuring practitioner to be appointed.
If a director fails to take the above action within the 21 day period, the Australian Taxation Office can commence formal recovery against the Directors personally for payment, which can result in bankruptcy proceedings.
What to do if you are issued a DPN
It is important to seek professional advice, either from your accountant, solicitor or an insolvency practitioner, immediately to discuss the various options available to remit the debt and avoid personal liability, and certainly within the 21-day period provided under the DPN.
Failure to comply with the DPN within the 21 day period can lead to recovery action being commenced against the directors personally for payment of the debt, which can result in bankruptcy proceedings.
What does a DPN look like?
If you receive a DPN it will look like this: Click here to view DPN example
If you have received a DPN and need greater clarity on your responsibilities after its issue, or you believe you might be receiving one imminently, contact Shaw Gidley today.