The Australian Tax Office (ATO) can issue a company director with a Director Penalty Notice (DPN).
What is a Director Penalty Notice?
Directors are personally liable for some unpaid tax debts. A company director is personally liable for Pay As You Go (PAYG), Superannuation Guarantee Charge (SGC), Goods and Services tax (GST), Luxury Car Tax (LCT) and Wine Equalisation Tax (WET).
In order to “activate” a director’s personal liability, the ATO needs to issue 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.
I can’t pay my tax debt, what can I do?
Make sure the tax debt is reported within the required timeframe, whether it can be paid at the time or not. This will mean any penalty under a DPN is “non-lockdown”. To avoid a lockdown DPN, the timeframe for reporting GST and PAYG is within 3 months of the due date and superannuation needs to be reported by 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.
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: