The ATO is taking strong action by ramping up its collection of overdue tax payments, including the serving of Director Penalty Notices (DPNs) which were temporarily suspended during the COVID-19 pandemic. Since March, up to 50,000 DPNs may already have been sent to directors.
A DPN is a letter that is sent directly to directors of companies if the company has not met their debt obligations in respect of PAYG withholding, Superannuation Guarantee Charge and GST. The directors will be notified that the ATO is considering issuing them a DPN which makes them personally responsible for these debts in accordance with Division 269 of Schedule 1 of the Taxation Administration Act 1953 (Cth) (TAA). This Division operates in the following way:
- A Director has an obligation to cause the company to comply with its obligation from the initial day on which the tax obligation accrues.
- If the company fails to comply with its obligation by the end of the due day for payment, a penalty becomes due and payable by the director equal to the amount of the company’s obligation.
- The Commissioner must serve a DPN before commencing proceedings to recover a penalty.
The issuing of a DPN is a procedural step only required of the ATO before it can commence proceedings against the director to recover penalties which have already accrued.
If a company has made timely reporting of its obligations (even if it has not paid them), the ATO will send what is called a ‘non-lockdown’ DPN. This requires the company to have lodged its Business Activity Statements (BASs) and installment activity statements (IASs) within three months after the due date for lodgment, and its SGC statements within one month and 28 days after the end of the quarter to which the unpaid superannuation contributions relate. A non-lockdown DPN gives the director the option of complying with the notice by appointing a voluntary administrator (VA), a small business restructuring practitioner (SBRP) or a liquidator within 21 days after the date on which the DPN was sent – any penalty is then remitted by the ATO. However, if the company has failed to report its obligations, the ATO will serve a lockdown DPN and the only way for a director to comply with the notice is to pay the penalty amounts within 21 days.
The Commissioner will not commence proceedings against a director to recover a penalty while there is an instalment arrangement in place with the company, providing the company complies with the arrangement. However, if the company defaults on the instalment arrangement, the Commissioner will be at liberty to proceed against the director.
Unfortunately there are only a limited number of defences which a director may be able to raise to avoid liability for failing to comply with a DPN. The main defences are:
- An illness meant that it was unreasonable for the director to take part in the management of the company when the company failed to comply with its SGC and PAYG obligations.
- The director took all reasonable steps to ensure that the company complied with its obligations, but there were no reasonable steps that could have been taken to ensure that: the company complied with its obligation; an administrator was appointed to the company; a small business restructuring practitioner was appointed; or, the company was wound up (i.e. a liquidator was appointed).
In short, the ATO has stated that their focus is on making directors aware of their obligations and personal liabilities, and the actions they may take if directors don’t engage. The ATO will be providing clear pathways for clients to re-engage, work with them, and avoid escalation – including providing ‘help with paying’ and ‘support in difficult times’. It is crucial that directors in these circumstances contact the ATO early before their debts become unmanageable.
Contact Matovic Business Accountants now to ensure your company’s tax requirements are up to date now! Phone (07) 3557 5721 or email us at info@matovicaccounting.com.au
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