The Australian Tax Office (ATO) can issue a company director with a Director Penalty Notice (DPN).
What is a Director Penalty Notice (DPN)?
Directors are personally liable for some unpaid tax debts. In order to “activate” a director’s personal liability, the ATO issues the director with a Director Penalty Notice.
There are two types of DPNs – defeasible (non-lockdown) and non-defeasible (lockdown). The difference between the two is whether or not the tax obligation has been reported within the required timeframe.
What can a company director get a DPN for?
Directors can receive penalty notices for:
Unpaid Pay As You Go Withholding (PAYGW)
Unpaid Goods and Services Tax (GST) - from 1 April 2020
Unpaid Wine Equalisation Tax (WET) - from 1 April 2020
Unpaid Luxury Car Tax (LCT) - from 1 April 2020
For most directors, PAYGW, superannuation and GST are the major concerns. If you have received a DPN you need advice now, as it may be possible to deal with your personal liability in some circumstances if you act promptly.
I can’t pay my tax debt, what can I do?
The most important thing is to report your tax debt. Make sure the tax debt is reported within the required timeframe, whether you can pay it or not. This will mean any penalty under a DPN is “non-lockdown”. To avoid a lockdown DPN, Superannuation needs to be reported by the due date and other applicable tax obligations needs to be reported within 3 months of the due date. If any of those debts are not reported within the prescribed timeframe, directors are automatically liable for the unpaid amounts and are unable to achieve remission of that penalty other than by the debt being paid – by the company or by the director personally.
Can ATO issue DPN after liquidation?
Yes – the ATO can issue a DPN after a company has gone into liquidation or Voluntary Administration. The debt owed by the director/s under a DPN is a separate personal liability owed to the ATO and survives the liquidation of the company.
How long is a director liable for unpaid company tax debts after resignation?
A director can be held liable under a DPN for debts that remain unpaid for a time when they were a director. This debt remains collectable indefinitely. Generally, the ATO will apply payments received to the oldest tax debt first. As such, tax debt can be cycled over time, with old tax debt replaced by new tax debt as payments are made. However, unless the tax is paid a director could remain liable for many years after their resignation.
What is director penalty parallel liability?
Director’s parallel liability means that all directors are liable, in full, for the amount stated on the DPN. The director penalty operates in parallel to the liability owed by the company. This means that it is the one debt, but the ATO can recover the amount from more than one source. If the ATO receives from the company for a debt that a DPN has been issued for, or a part payment from a director subject to a DPN, the penalty of all directors is reduced by that amount.
How to remit a non-lockdown Director Penalty Notice
If the debt has been reported appropriately, a non-lockdown DPN may be issued. A director can achieve remission of a non-lockdown penalty by making payment, by the company or the director, or by placing the company into Voluntary Administration or Liquidation within 21 days from the date of the DPN.
Note: This is from the date of the notice, not the date of receipt! By taking one of these actions the director will not be personally liable for the non-lockdown amount. If a director does none of these things they have no further opportunity to remit their personal liability.
How to remit a lock-down Director Penalty Notice
If the liability has not been reported within the required timeframes the director cannot remit the personal liability. The company or the director will need to pay it in full or enter into some type of formal insolvency arrangement.
What to do when I receive a DPN?
If a director is considering having the company enter into a payment plan with the ATO once the notice expires, any penalty cannot be remitted in the future. Thus, if the company defaults on the payment plan, the director will still be personally liable for the unpaid amount under the DPN.
If you receive a DPN you need specialist advice.
Read more about DPNs from our case study archive: