The DPN regime was significantly overhauled in July 2012. Fundamentally, the effect of the changes is to widen the scope of the circumstances in which directors can be made personally liable for Company Pay As You Go (“PAYG“) and Superannuation obligations via the issue of a DPN.
The changes were introduced with the intention of increasing compliance of companies with reporting and payment obligations with respect to PAYG and Superannuation. Furthermore, the changes demonstrate a shift in attitude on the part of the ATO toward businesses that are struggling financially. In particular, the ATO appear to be targeting businesses that attempt to finance themselves by avoiding PAYG and Superannuation reporting and payment obligations.
Organisations that are not up to date with their obligations to lodge Business Activity Statements (“BAS“) and Tax Returns are particularly at risk. Fines and/or prosecution can be imposed on directors and companies that fail to lodge their BAS and Tax Returns in a timely fashion.
Moreover, businesses that lodge their returns or BAS late often incur Failure to Lodge on Time Penalties (“FTL Penalties“). Taxation debts that are not paid on time also incur interest in the form of the General Interest Charge (“GIC“), which is calculated with reference to current market interest rates, and currently sits at approximately 9.59 per cent.
The consequences for Companies that do not comply in a timely manner with compliance notices sent to them by the ATO may include the following:
- Auditing and increased investigation into the Company’s affairs;
- Default Assessments of a Company’s net assessable income or taxable income based on the information the ATO does have;
- Referral to another organisation for prosecution with the absence of any further warning;
- Fines of up to $8,500 for individuals or jail terms of up to 12 months, if a person is prosecuted and convicted;
- If prosecuted and convicted, an individual could be fined up to $8,500 or imprisoned for up to 12 month; and
- Companies can be fined up to $42,500.
In circumstances where a BAS is lodged on behalf of a Company but PAYG amounts reported remain unpaid, the ATO can issue a DPN to the director(s) of that Company.
After the DPN is issued, there is a 21 day notice period. A failure by the Company’s director(s) to pay the amount stated in the DPN with the notice period can lead to that director being made personally liable for the Company’s PAYG/Superannuation debt referred to in the DPN.
A director can avoid personal liability in limited circumstances, specifically if either of the following occur prior to the 21 day notice period expiring:
- The Company is placed into Voluntary Administration; or
- The Company is placed into Liquidation;
However, if unpaid PAYG is not reported within three (3) months of the due date, the director(s) of the Company will be personally liable for any unpaid amounts, regardless of whether the company is placed into voluntary administration or liquidation after that three (3) month period.
To help reduce the risk of fines, penalties or prosecution, we recommend that:
- BAS and Tax returns be lodged as soon as practicable.
- Make payment of all PAYG and superannuation charge amounts within time.
- Keep all BAS and PAYG returns up to date and lodged within 3 months of the due date.
Irish Bentley Lawyers have significant experience in assisting clients who are struggling with ATO debts. The services that we can offer include:
- Applying to the ATO to have GIC and FTL Penalties remitted (reduced);
- Negotiating arrangements whereby companies and individuals can meet their debts to the ATO by way of instalment payments over time;
- Seeking a review of ATO decisions through the Administrative Appeals Tribunal;
- As a last resort, bankruptcy and insolvency services, including:
- Company liquidations, voluntary administrations and Deeds of Company Arrangement; and
- Proposals pursuant to section 73 of the Bankruptcy Act 1966; and
- Proposals pursuant to Part IX and Part X of the Bankruptcy Act 1966.
If you or your business is struggling with ATO debts then please contact our office on (07) 3891 3333. Our friendly staff are more than happy to assist you in any way that we can.
Please note this is not legal advice it is general advice and may not be applicable to your circumstances. If you would like legal advice on your circumstances please contact our office.