Most directors and professionals in Australia know very little about director penalty notices, yet this notice can result in personal liabilities from their limited liability company. Yes, you read right. As a director you can end up attracting a personal liability from your limited liability company. This guide will help you understand what exactly a director penalty notice is and how you best handle it.
A Director Penalty Notice (DPN) is a Notice that the Australian Tax Office (ATO) can send to a director or directors that can make that director or directors personally liable for two types of tax debts of a limited liability company namely, Pay As You Go (PAYG) and Superannuation Guarantee Charge (SGC) liabilities.
The Director Penalty Notice exposes a director to a personal liability that they might not be aware of, since it allows the Australian Taxation Office to pursue directors personally for Pay As You Go (PAYG) tax and superannuation guarantee charges owed by their company.
The DPN is under Division 269 to Schedule 1 of the Taxation Administration Act 1953 (Cth). This is the Act that allows the ATO to directly pursue directors for PAYG and superannuation liabilities of a company.
If you have you lodged your Pay As You Go returns within three months of the due dates of these documents, or your superannuation guarantee charge statements within 28 days of the end of each quarter, then you fall under Category 1.
If you have complied with the above lodgement timeframes but the PAYG and/or superannuation remains unpaid, then you may receive a director penalty notice at your personal address as is recorded with the Australian Securities and Investments Commission (ASIC) for the company.
In some cases, the registered tax agent for your company may receive the director penalty notice on your behalf. Note: this does not transfer the liability to the tax agent. It merely means the tax agent is responsible for forwarding the Directory Penalty Notice to the directors. Thus it is essential that directors maintain ASIC records with up to date addresses so that crucial documents such as DPNs are sent to correct addresses.
Upon receiving the director penalty notice, you have 21 days from the date of the notice to exercise one of three options to avoid personal liabilities. The options are:
• Pay the required amounts of PAYG and superannuation Tax to the Australian Tax Office by due dates.
• Place the company under voluntary administration or,
• Liquidate the company
Exercising one of the above options within 21 days, will allow you to avoid personal liability and the debt remains with the company.
If you have not lodged your Pay As You Go returns within three months of these documents’ due dates, or your superannuation guarantee charge statements within 28 days of the end of each quarter (and these liabilities remain unpaid), then you and any other directors concerned automatically become personally liable for unpaid PAYG tax and superannuation tax.
Pay your PAYG and superannuation liabilities.
If you are presently unable to pay, then the next option is make sure you lodge your PAYG tax returns within three months of their lodgement date, and superannuation guarantee charge statements within 28 days of the end of each quarter. This will allow you to receive the director penalty notice in the mail and 21 days to take action and avoid personal liability.
Does the Australian Tax Office (ATO) always issue a director penalty notice and do it mean automatic bankruptcy for me?
Short answer- No. However, several factors have to be considered:
Director penalty notices are issued at the discretionary the Australian Tax Office.
There is no cut and dry rule that encapsulates the tax office’s discretion to issue DPN. It is often the case that DPNs are issued to companies or directors with a history of defaulting on tax payments. The size and age of the tax debt are also influential factors in the issuing of a DPN.
In addition to this director or directors personal financial status is an important factor that is considered when determining if the Director Penalty Notice is to be pursued.
As it would be fruitless to pursue claims against directors with no assets as this will only mean unjustified costs for the tax office.
Over and above there is no definitive answer that is why it is advisable to seek professional advice in these circumstances.