The best thing about a DPN is not getting one
Previous Macks Advisory newsletters and articles on our website have detailed the origin and nature of Australian Tax Office (ATO) Director Penalty Notices (DPNs) and the angst they cause company directors.
Increasing numbers of directors are being lumbered with large personal debts, some being bankrupted, after DPNs rendered them personally responsible for companies’ unpaid PAYG tax or superannuation payments.
If you’re a company director unfamiliar with the DPN regime and unsure how it operates, then visit http://macksadvisory.muchmedia.com.au/ and type “dpn” in the login search field.
The following offers suggestions for avoiding DPN liability.
Important things to do
If you’re considering becoming a director of existing company, or are resigning as a company director, be careful.
Does the company you’re joining have PAYG tax and/or superannuation liabilities? If it does and you sign on as a director, you can become personally liable for these as well as any similar debts the company may incur during your term as a director.
If you resign from a company lagging in PAYG and/or superannuation payments you won’t escape the personal liability for the tax debt incurred during your entire directorship.
Here’s what to do to avoid being issued with a DPN and suffering the consequences thereof.
Ensure every company Business Activity Statement (BAS) is lodged within three months of the due date. If the company has failed to make superannuation payments, be sure to lodge a Superannuation Guarantee Charge Statement (SGCS) within the same period.
If you do this and the ATO issues a DPN because required payments haven’t been made, you can avoid personal liability by ensuring the company is put into liquidation or voluntary administration within 21 days of the date on the notice.
However, if you don’t lodge the BAS and SGCS within three months of their due dates you can’t avoid personal liability under a DPN.
Get the basics right
Ensure the record the Australian Securities and Investment Commission (ASIC) has of your residential address as company director, is current.
The ATO would use that record to post you a DPN, and if you didn’t receive it because ASIC’s information wasn’t up to date, consequences that could flow from that would be yours, not ASIC’s. For example, company lodgements to the ATO could have been within required times. But if you didn’t receive a DPN because you’d changed your address and not notified ASIC, that could mean you’d missed the opportunity to avoid personal liability by appointing a liquidator or voluntary administrator to the company within 21 dates of the date on the DPN.
If your company has ongoing PAYG tax or superannuation debt, contact the ATO. Seek to negotiate a payment plan. A DPN won’t be issued during this procedure and while you’re fulfilling the payment plan.
It’s one of the most common indications of a company in financial difficulty when it doesn’t keep employees’ superannuation entitlements up to date and doesn’t lodge SGCSs. Directors who allow this state of affairs to exist, often aren’t aware they can be made personally liable for the unpaid superannuation under the ATO’s DPN regime.
Should your company show signs of becoming bogged down in financial difficulty, seek professional help without delay. Procrastination is the thief of time, and in irreplaceable time things could worsen to a point when you’re issued with a DPN. You’ve then only three weeks to do anything constructive that will absolve you from personal liability for the company’s PAYG and superannuation debt.
Defences to the ATO’s claims
Imagine the worst has come to the worst. You’ve been issued with a DPN, have not made the most of what little wriggle room it offers, and you’ve been unable to settle the company’s tax debt for which as a result of the DPN, you’ve now become personally liable. Accordingly, the Commissioner of Taxation has taken you to court.
You have three possible defences.
- You were so unwell at the time the relevant debts incurred, you were unable to manage the company.
- You took reasonable steps to try to ensure the company paid required PAYG tax and superannuation.
- You took reasonable steps to put the company into voluntary administration or liquidation at a relevant time.
Watch this space for the cautionary tale of company director Peter Panayi who treated a DPN with scant regard, lost a consequent court trial and chose to appeal the decision.
He also lost the appeal after offering at this second hearing evidence no more substantial, and arguments no more potent than presented initially.
Be aware also that the ATO, soon to be handed additional powers to deal with companies and individuals, has announced plans to intensify pursuit of those failing to meet their tax obligations.
