“I’m Back”

Wednesday June 28, 2023

For all intents and purposes, the pandemic is over and the ATO’s restraint on enforcement actions is also over. Just like Arnie in The Terminator, the ATO IS BACK! Lately, the ATO is being especially aggressive when it comes to the issuing of Director Penalty Notices (“DPN”). Therefore, it is important to understand how DPNs work and how to avoid your clients putting their personal assets at risk.

What is a DPN?

A DPN is a tax enforcement mechanism issued by the ATO to a director of a company if they have not met their company’s tax debt obligations with respect to PAYG, Superannuation and GST.

Time and time again we hear, “… it’s ok, all lodgments are up to date!”.

However, the issue is not whether the lodgments are up to date, but rather whether they were lodged on time. It’s no good to lodge ‘in bulk’ every now and then. It is absolutely critical to lodge on time, even if cashflow prohibits the relevant payments being made within the prescribed time frame for lodgment.

It is also important to note that any DPN issued by the ATO will be sent to the director’s residential address as recorded with ASIC. If a director changes address and does not update ASIC with the new address, it’s just too bad.

The ATO may try to data match addresses against their other records but is not required to do so. If the DPN has been sent to the address recorded with ASIC it is deemed to have been received even if the director has never even seen it.

There are two types of DPN; A non-lockdown DPN and a lockdown DPN.

Non-lockdown DPN

A non-lockdown DPN can be issued to a director where a company has lodged its BAS and SGC statements by their due dates but has not yet paid its PAYG, GST or SGC on time.

If a non-lockdown DPN is issued, a director avoids personal liability if within 21 days from the date on the notice he/she has the penalty remitted by:

  • Paying the unpaid tax (or causing the company to pay);
  • Having the company enter into voluntary administration;
  • Placing the company into liquidation;
  • Appointing a small business restructuring practitioner (“SBRP”); or
  • Prove a defence to the DPN.

A director cannot comply with a DPN by entering into a payment arrangement with the ATO. This option was revoked in March 2022.

It is interesting that we are often introduced to clients with only 14 days to go before the DPN becomes lockdown.

Lockdown DPN

Now this is where the timing comes into play!

A lockdown DPN can be issued to a director where a company has not lodged its BAS or SGC statements by the due dates and has failed to pay its PAYG, GST or SGC on time.

The lockdown DPN is more severe and the receipt of a lockdown DPN can be a confronting and stressful experience for a director.

If a lockdown DPN is issued, there is no way a director avoids personal liability if the company can’t pay the tax debt. The director is automatically and irrecoverably personally liable. As such the director’s personal assets are well and truly at risk. The debt cannot be remitted through voluntary administration, liquidation or appointing an SBRP.

Unfortunately, remittance can only be achieved if the debt is paid in full.

The only way the director can avoid the “I’m back” debt is to enter into some type of personal insolvency.

We often see clients who have received DPNs years after the tax debt was incurred, and even years after the company has been liquidated.

There are four ways in which the ATO can recover director penalties:

  • Offsetting tax credits due to the director;
  • Issuing garnishee notices;
  • Commencing court action against the director; or
  • Entering into a payment plan.

We are just now seeing some action from the ATO.

Take Away’s

One take away is to act immediately because the clock starts ticking on the date of the DPN not the date of receipt.

Remember ‘prevention is better than the cure’.

You will help protect your clients if you ensure that they at least lodge on time, in order to avoid any basis for which a lockdown DPN can be issued.

It may not be your role to oversee your clients’ tax timetable, but you may have grateful clients for very little effort.

Should you have clients or associates that you know are struggling with financial issues or need assistance in reviewing their business affairs in preparation for what’s around the corner, our team of Strategists would be pleased to discuss options that are available on how to best design and implement insolvency strategies. Contact us now on p. 1300 765 080 | ua.mo1721809221c.arj1721809221d@ofn1721809221i1721809221

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