An overview of Director Penalty Notices
Director Penalty Notices (DPN) are notices issued by the Australian Tax Office (ATO) that can make the company directors personally liable for the company’s tax obligations.
The notice has two purposes – the first being to advise of the company’s liability and the corresponding penalty raised. It also sets out the options that may allow the penalty to be remitted.
The ATO can commence recovery proceedings 21 days after the notice date.
What company tax liabilities are included in the penalty?
Directors can incur a penalty equal to the amount of certain taxation obligations, including unremitted PAYG withholding, net GST (goods and services tax) and SGC (Super Guarantee Charge) liabilities (or an estimate of those liabilities).
When can the penalty be remitted?
Four options are available, and action must be taken within 21 days from the date of the notice to avoid personal liability:
- Pay the company’s tax debts
- Appoint a voluntary administrator
- Appoint a small business restructuring practitioner
- Appoint a liquidiator to wind up the company.
The latter three options might not result in remission of the penalty. Whether the penalty can be remitted depends on whether the company has reported its applicable taxation lodgements by the due date. If not, the penalty can only be remitted by payment.
Penalties that cannot be remitted except by payment are commonly called a ‘lockdown’ director penalty notice. This ‘lockdown’ occurs when:
- For GST and PAYG withholding, the liability is not reported to the ATO within three months of the due date.
- For SGC, the company has not lodged its SGC statement with the ATO by the due date.
For GST and PAYG withholding, the due date is the company’s usual reporting date (i.e., generally 21 days after month end or 28 days after quarter end, depending on the company’s reporting cycle).
The due dates for SGC statements are one month and 28 days after the end of the relevant quarter (e.g., for the 1 January to 31 March quarter the due date would be 28 May).
Liability for newly appointed directors
A new director should check for unpaid or unreported tax obligations otherwise they could also become personally liable. A newly appointed director to a company with outstanding PAYG, net GST or SGC obligations will become personally liable after 30 days of their appointment unless the company does one of the four remission options.
There are three defences for a director:
- Because of illness or for some other valid reason, it would have been unreasonable to expect the director to take part (and they did not take part) in the company’s management.
- That the director took al l reasonable steps to ensure the directors caused the company to comply with its obligations or to cause the company to appoint an administrator, small business restructuring practitioner or liquidator (or that there were no reasonable steps to ensure that any of those things happened).
- For SGC liabilities, where there is a reasonably arguable position with regarding applying the SGC law.
- For further details, refer to the ATO website:
- Search for ‘Director Penalties for general guidance and case study examples.
- PS LA 2011/18, Enforcement measures used for the collection and recovery of tax-related liabilities and other amounts.
How can Cor Cordis assist?
If you require further information or would like a confidential discussion, please contact one of our partners at our office near you.