The ATO has recently issued warnings of director penalty notices (DPN) to businesses with outstanding debt. During COVID-19 the ATO pulled back from actively chasing debt, but now as we come out the other side of the pandemic they will begin to reengage with businesses. Their focus is to make directors aware of their obligations and personal liabilities and provide pathways for directors to re-engage and avoid escalation.
What is a Director Penalty Notice (DPN)?
Directors become personally liable for company tax obligations, including superannuation, PAYG withholding and GST, if they are not paid by the due date. In this case, the ATO will issue the director with a DPN. There are two types of DPNs:
A ‘Traditional’ DPN, which can be issued where:
- a company has lodged business activity statements (BAS) and installment activity statements within three months of the due date and
- has lodged superannuation guarantee charge (SGC) statements within one month and 28 days after the end of the quarter but
- has not paid the relevant amounts owed
A ‘Lockdown’ DPN, can be issued where a company has not lodged their BAS or SGC statements within the above timeframes and has not paid the relevant amounts.
What to do if you get a Director Penalty Notice
Do not ignore it. Contact your Accountant straight away to begin engaging with the ATO. A payment plan may be available, this will be at the discretion of the ATO. There are a limited number of circumstances in that you can defend a DPN:
- The director had a serious illness
- The director took all reasonable steps to ensure compliance with its obligations, or there were no reasonable steps that could have been taken
- In the case of an unpaid SGC liability, the company applied the Superannuation Guarantee (Administration) Act 1992 in a particular way that was "reasonably arguable".
Avoiding a Director Penalty Notice
Company directors need to be aware of their obligations and have sufficient knowledge of their company’s GST, PAYGW, and superannuation reporting and payment practices. In addition, having a proactive Accountant or Advisor lodging your business activity statements will help to ensure they are lodged on time. Communicate with the ATO if you cannot pay an activity statement or superannuation on time and enter a payment plan. This will avoid a lockdown DPN.
Reach out to Link Advisors for more information.