Director Penalty Notices (DPNs) are a way of the ATO collecting companies outstanding tax liabilities. These penalties make directors legally responsible if their company has any unpaid Superannuation Guarantee (SGC) or Pay As You Go (PAYG). Although personal liability doesn’t expand to GST that hasn’t yet been recorded or paid, receipts can still be handed out by the ATO at their own judgement including to companies previously liquidated.
To ensure a companies’ director isn’t issued with a DPN it is important to:
- Ensure a Companies Reporting is a Priority
- Understand the Types of DPN
- Know the Fore Warnings
- Act Immediately
Ensure a Companies Reporting is a Priority
If a companies’ PAYG is overdue by more than 3 months or their SGC has not been given to the ATO by the deadline, a director will not be able to put a company into voluntary administration or liquidation. This is often done so the director can be cleared of any personal liability. Paying the outstanding amount owed, is the only way to stop a director being personally responsible.
The ATO can use an estimate to give a DPN to a company with overdue lodgements. Once the required information has been reported, the ATO’s estimate can be reduced if the amount owing is less, however the DPN must still be paid.
Understand the Types of DPN
The ATO can issue two types of DPN’s – lockdown and non-lockdown. These notices can be given to companies concurrently depending on their debt. A non-lockdown DPN can be cancelled if the debt is paid, the company is under administration or is in the process of being closed. A lockdown DPN will only be cancelled if the required reporting is completed and debts owing paid.
If a company has past, unresolved PAYG or SGC liabilities, it is important for a new director to understand these liabilities can be passed on to them 30 days after their employment. If a director resigns during this time, it does not mean they are no longer liable for the debt either. Settling any amounts owing, appointing an administrator or the company being put into liquidation within the 30 days is the only way to stop a director being personally responsible.
When receiving a DPN, a director must act immediately as the 21 days given to resolve the issue is not calculated from when a director receives the notice, but the date of issue. Although the ATO may send a copy of a DPN to the director’s accountant, this cannot be relied upon, meaning companies must make updating and reporting any changes to a director’s address a priority. It is encouraged to promptly seek expert advice when receiving a DPN.
Need expert advice – Contact HBG Tax and Accounting
HBG Tax and Accounting work closely with their clients and are passionate about giving them extra and much needed support. Contact the team today on 9594 1963 or visit their office at Unit 7, 12 Belgravia Terrace, Rockingham.
The material and contents provided in this article is of informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained