The ATO has significantly ramped up its debt recovery activity, reportedly issuing 120 Director Penalty Notices (DPNs) a day. The receipt of a DPN is an extremely serious matter for a director, as they not only impact the company as the primary taxpayer, but also put any directors and their personal assets firmly in the firing line.
Where the taxpayer is a company and the unpaid tax debt relates to PAYG, Superannuation Guarantee Charge, or GST, the ATO can pursue directors for the tax debt personally.
Directors have 21 days to respond to a DPN before being able to avoid personal liability for the outstanding debt. It is imperative that directors take immediate action following receipt of a DPN to avoid putting personal assets at risk.
Options available to directors depend on the type of DPN issued and whether they are a “Lockdown DPN” or a “Non-Lockdown DPN”.Â
Non-lockdown
A Non-lockdown DPN can be issued where the company has lodged its BAS or SGC statements within the time but has not paid the amounts due.
Following receipt of a Non-Lockdown DPN, directors must do one of the following within 21 days in order to avoid personal liability:
- Pay the debt;
- Appoint a voluntary administrator;
- Appoint a small business restructuring practitioner; or
- Appoint a liquidator to wind up the company.
Lockdown
A Lockdown DPN can be issued where a company has not lodged its BAS or SCG statements in time and has not paid the amounts due. In this case, the directors immediately become personally liable as soon as the Lockdown DPN is served on the director.Â
The only way for a director to comply with a Lockdown DPN is to cause the company to pay the underlying debt, or to pay the director penalty directly.Â
Consequences
If the director does not comply with the DPN or a defence does not apply, the ATO may collect the tax debt from either the company or its directors personally, through the various means of enforcement including garnishees of bank accounts, retention of tax credits, the issuing of a statutory demand, winding up proceedings, and commencing other forms of recovery proceedings.Â
Key takeaways
- Open lines of communication with the ATO early when tax debts escalate, either directly or through their trusted advisors.
- Ensure GST, PAYG and Superannuation Guarantee Statements are lodged by the due dates, irrespective of whether the company has funds to pay.
- Directors must act quickly if they receive a Non-lockdown DPN, or risk becoming personally liable for their company’s debt.
- If directors receive a Lockdown DPN, they must cause the debt to be paid within 21 days or face personal liability.
- If the tax debits cannot be paid immediately, or by agreement with the ATO, then other options should be considered, such as restructuring options.
If you receive a DPN, we can help.
