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Update: Director Penalty Notices (DPNs) – Sales Taxes: VAT, GST

The ATO is now issuing out over 200 Director Penalty Notices
(DPN) each day and accordingly it is time for a quick refresher

What are DPNs?

Company directors are responsible for ensuring that the
company’s tax and super obligations, including pay as you go
withholding (PAYGW), GST and super guarantee charge (SGC), are
reported and paid on time.

Where a company does not pay certain liabilities by the due
date, the ATO can recover these amounts from a director personally
as a current or former company director once a director penalty
notice (DPN) is issued.

DPNs outline the unpaid amounts and remission options available.
The ATO can recover the amounts by:

  • issuing garnishee notices;

  • offsetting any tax credits against the director penalties;

  • initiating legal proceedings against directors to recover the
    director penalty.

Where a company has more than one director the ATO may recover
director penalties equally from all the directors. If an
individual director pays the DPN in full they have the capacity to
reclaim that money from the company and in the event the company
can not repay the funds then the director can claim the funds from
their fellow directors in equal shares.

There are two types of director penalty notices which the ATO
can issue:

  • traditional notices – 21 days to remit; and

  • lockdown notices – immediate remittance.

Remittance of the director penalty

Unpaid PAYGW or GST reported to the ATO within 3 months of the
due date may lead to the issuing of a traditional DPN and the
penalty can be remitted by:

An unpaid amount reported later than 3 months after the due date
may result in a lockdown DPN being issued and the
only way to remit the director penalty is to pay the debt in

For SGC, remission of the DPN depends on when the ATO has been
notified about SCG amounts. If the unpaid SGC is reported by the
due date for the SGC statement, the penalty can also be remitted by
taking one of the actions set out above.

If a valid DPN has been issued, and 21 days has passed since it
was issued and none of the actions set out above have been taken
then, the remittance provisions are no longer available to a
company or director, and either the company or the director must
pay the amount due to the ATO in full.

Where will the ATO send the Notice?

The ATO is only required to send a notice to the address of a
director recorded by the Australian Securities and Investments
Commission (ASIC), regardless of the currency of the address. The
ATO may alternatively send a notice to a director at his or hers
registered tax agent’s address. Additionally, the DPN will
appear on the company’s ATO portal that tax agents and
directors can access.

The ATO is able to issue a Lock-Down Director Penalty Notice,
even after an Administrator or Liquidator has been appointed to a
Company, if applicable taxation debts that were not reported to the
ATO within three months of the Due Day remain unpaid.

What defences are available to a Director issued with a

There are only limited defences available to company directors
issued a DPN these are:

  1. Illness or Incapacity (A director was unable to take part in
    the management of a company).

  2. All Reasonable Steps (All reasonable steps were taken by a
    director to comply with his or her obligations, or no such steps
    were )

  3. Superannuation Guarantee Charge – Reasonably Arguable Position
    (A director adopted a reasonably arguable interpretation of
    Superannuation Guarantee Charge legislation.)

What if I’m a Former or New Director?

Former Directors?

Director Penalty Notices can be issued to former directors if
the relevant debt was incurred during their term as a director.

New Directors?

Newly appointed directors have just 30 days to establish
whether any existing ATO liabilities are outstanding and capable of
being the subject of a DPN.
If it is determined that there
are relevant overdue liabilities, the new director must either:

  • Resign as a director of the company.

  • Appoint a liquidator, administrator to the company or a small
    business Restructuring practitioner.

  • Be satisfied the company can pay the debt.

If any of the above do not occur, a new director may be
subject to a DPN.

What if the Company has been deregistered by the ASIC?

This situation presents a significant problem as it is unlikely
a director will be able to have the company re-registered with the
ASIC within the 21 days available from the date the DPN is issued
and consequently the only way to have a DPN remitted will be to
repay the debt in full.

Are Payment Plans a Good Idea?

The ATO may request that the company or a director enter a
payment plan to repay the outstanding debt as a way of resolving
the DPN. Prior to entering in to a payment plan the following
issues require consideration:

  • A payment plan with the ATO does not cause the tax debt which
    was due and payable to cease to be due and payable, further there
    is a risk the Company may trade whilst insolvent and potential
    personal liability for directors due to insolvent trading may

  • In some circumstances, a director can become personally liable
    for ATO payments made under a payment plan, where they weren’t
    previously liable for those underlying tax debts. If a Company
    enters a repayment for PAYG and Superannuation Guarantee Charge and
    is subsequently placed into liquidation, the Liquidator may be able
    recover monies paid under the payment plan as an unfair preference.
    Any amount repaid by the ATO for PAYG and SGC as an unfair
    preference can then be claimed by the ATO against the directors
    personally pursuant to Section 588FGA of the Corporations

  • Secured Payment Plan – The ATO may seek a Payment Plan that is
    secured against the assets of the Company or the Directors. As
    noted above professional advice should be sought.

  • Accordingly, prior to entering a payment plan professional
    advice should be sought.

Are Traditional and locked down DPNs separate actions by the
Tax Office?

The ATO may issue you with both a traditional DPN and a Lockdown
DPN in the one notice for different debts. It is important to
examine the DPN to understand potential personal liability. Below
is an example of the column headings of a DPN which combines both a
traditional and a Lock Down DPN:

Traditional DPN

Lock Down DPN

Amount the commissioner thinks is the unpaid amount of the
company’s unpaid liability

Amount the commissioner thinks is the unpaid amount of the
company’s unpaid liability not notified on or before
the end of 3 months after the due day

Accordingly, it is important to pay particular attention to the
notice you receive to determine the action required.

Garnishee On Director’s Bank Accounts

Garnishees allow the ATO to compel payment from a third party
that holds amounts due to, or on behalf of, a taxpayer that is
indebted to the ATO. Once a Director Penalty Notice has been
issued, and the 21 day period has expired, the ATO is entitled to
seek a garnishee order against any third party that owes money to,
or holds money on behalf of, the relevant director, including a
director’s personal bank accounts.

Key Takeaways for Directors

Some key takeaways for you to consider:

  • Do not think the problem will go away if you ignore

  • Pay your yearly ASIC fee and keep the data of your company
    current with their offices.

  • Make sure you are lodging all required statements with the ATO
    within their due periods, even if you can’t pay the debt
    straight away.

  • Seek extensions where necessary, it is far better to contact
    the ATO to notify them of delays or request an extension than to
    wait it out

  • Treat your position with care and diligence, know your
    obligations and potential liabilities. If you are new or resigning
    as director than ensure you are fully aware of all current and
    outstanding ATO liabilities.

  • Consider the SGC and ATO liabilities of deregistered

  • Prior to entering a payment plan professional advice should be

  • We understand the ATO intends to increase the number of
    DPN’s they are sending and when a director receives a DPN the
    21 days from the day it is issued may not be sufficient to take the
    necessary advice to deal with the problem.

If a company cannot pay the debt due to the ATO under the DPN
The appointment of an administrator to a company
that cannot pay the ATO debt subject to the DPN may result in an
outcome that saves the company and directors money compared to
paying the DPN debt in full.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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