The Director Penalty Regime is a warning to company directors that being a director is serious business.
Director Penalty Notices were introduced in 2012, and have been expanded since to cover unpaid PAYG, all outstanding superannuation guarantee charge liabilities, and all employee superannuation.
If the company is more than 3 month’s late in its tax return lodgements, then the director is personally liable for these company expenses (even if no DPN has been sent!).
This liability remains notwithstanding that the company may later be put into administration or liquidation. In some instances, the new legislation operates to make directors and their associates liable to pay PAYG withholding non-compliance tax (effectively reducing credit entitlements) where the company has failed to pay amounts withheld to the Commissioner.
An important consideration to note is that the changes will apply retrospectively at the commencement of the new legislation and a director may no longer be able have their director penalty remitted by appointing an Administrator or by winding up the company, and will be personally liable regardless, if they are outside the 3 month timeframe.
PAYG (Pay As You Go)
Company directors must make sure that PAYG withholding tax and employees superannuation are paid when due or alternatively, are adequately reported to the ATO through lodging BAS the Superannuation Guarantee Charge Statement on time.
What To Do
In our experience, it is commonplace for a company to have outstanding taxation lodgments such as business activity statements. Firstly, keep all lodgments up to date. If your company has an existing debt or outstanding reporting obligations seek legal advice immediately.
DPNs also make directors personally liable for company debt, where a notice is mailed to that director’s address.
It is contentious because mail gets lost and many directors that we meet deny ever receiving it.
If you get it in time, then there are things you can do – which should start with seeing an experienced insolvency lawyer straight away for advice.
You need to act within 21 days, so as soon as you find out about an DPN, you should get advice.
You should also ensure your ASIC details of your address are accurate and up to date, and we recommend you list your address as director as being where your lawyer or accountant operates their business from.
You simply cannot afford to not know about its existence, so using a professional office as your place of contact for ASIC makes absolute sense.
The Voluntary Administration (VA) process may be utilised within the 3 month reporting period as an alternative to risking automatic exposure to personal liability, however you also need to be mindful that the appointment may be a breach event under any loan arrangements (for example) so get advice FIRST.
There is no limit to the number of times the VA process may be used as long as it has been agreed upon by the Creditors throughout the process.
Directors outside the 21 day grace period to respond to the Directors Penalty Notice may find themselves having to put their company in Liquidation as well as filing for bankruptcy because they are automatically liable.
The best way to act is to act quickly and seek legal advice. There is often some delay with tax agents in begin diligent and promptly forwarding Director Penalty Notices.
Upon receipt, Directors are encouraged to act immediately.
The bottom line is that company directors must be aware of the financial position of their company. If in doubt about your company’s legal obligations, we urge you to contact our office to discuss. If your business has a tax debt or you have received a Director Penalty Notice it is vital that you seek professional advice immediately. There can be significant ramifications for not complying with the ATO’s notice. This can have the effect of losing your home, personal assets such as cars or shares. Irish Bentley Lawyers are highly experienced the areas of insolvency, taxation and importantly asset protection. Directors need to become more diligent in asset protection to avoid losing their wealth under the strict regime in which directors become automatically liable.