Director Penalty Notice

So, you’ve received a Director Penalty Notice (DPN)?

If you have received an ATO Director Penalty Notice, your first instinct might be to panic – especially if your current accountant just isn’t equipped to give you sound Director Penalty Notice advice. First and foremost, know that, although an ATO DPN can be serious, you don’t need to freak out right away. There are solutions. Here at Pherrus, we know Director Penalty Notice legislation inside and out. Read on to learn how you can overcome this hiccup and get your finances in order.

What is a Director Penalty Notice?

A Director Penalty Notice (DPN) is a notice issued by the Australian Tax Office (ATO) informing a director that they may be personally liable for two types of company tax debt:
  • Pay As You Go (PAYG)
  • Superannuation Guarantee Charge (SGC)
As a company director, you have a responsibility to ensure that your company meets its payment obligations under the PAYG and SGC schemes outlined by the ATO. In mid-2012, the director penalty regime was strengthened. And now, directors can more easily be held liable for unpaid funds.
If you have received a DPN, it will fall into one of two categories: Non-Lockdown DPN or Lockdown DPN. Let’s take a look at these in a little more detail, so you can better understand your best path forward.

Two types of DPN from the ATO

What happens when you receive a Non-Lockdown DPN?

If you have lodged BAS or IAS within three months of the due date but have PAYG withholding and SGC debts unpaid, you will most likely receive a Non-Lockdown DPN. The notice will give you 21 days to remedy the debt by undertaking one of the following three actions:
  • Paying the debt in full
  • Assigning a Voluntary Administrator
  • Putting your company into liquidation
If you successfully complete one of the above, you will not be held personally liable.

What happens when you receive a Lockdown DPN?

If you have failed to lodge BAS or IAS within three months of the due date, you, as the director, will automatically become liable. You do not have the 21-day window to fix the situation. Instead, you must pay the debt in full or enter into personal insolvency.

What are your possible defences?

If you can establish one of the following defences, you will not be held personally liable under a Director Penalty Notice:
  • You did not take part in the management of the company when the liability was incurred. This might be due to illness, a family emergency, or another serious reason.
  • You took all the steps available to you to ensure the following :
  • The company paid the debt
  • A Voluntary Administrator was appointed
  • The company is winding up

Get Quality Director Penalty Notice Advice

To ensure you achieve the best possible outcome, act fast. Get in touch with the team at Pherrus today – we can assist with all DPN issues, from Director Penalty Notices issued after Liquidation to new directors that have received a DPN. Contact us on (02) 9099 9109 today

A director penalty notice is an order received by the company's director from the Australian Taxation Office. This notice makes the director personally liable for specific corporate government obligations that have not been met. Director penalty notices may be applied if a company has tax debts for Pay As You Go (PAYG), Superannuation Guarantee Charge (SGC) or Goods and Services Tax (GST).

If you receive a director penalty notice from the ATO, you mustn't ignore this warning. Even if you are newly appointed for more than 30 days, you will be eligible to pay any tax debts that the company has incurred personally. Once you have received a penalty notice, there are limited options available to you. In most cases, you will be required to pay the tax debt within 21 days, with entire personal liability if you still do not pay.

It's important to note that, on a 21-day penalty, the clock starts from when the letter is sent, not received. If you have already reported unpaid amounts within three months of the due date, you also have the option to appoint a liquidator to wind up the company or go into administration. If this does not apply, your only option is to pay.

The traditional, 21-day penalty notice is the standard form of director penalty notice in cases where PAYG, Super or GST payments are outstanding. Within these 21 days, directors can respond to the notice by paying the debt, liquidating the company, going into administration, or agreeing to ongoing payment with the ATO. The 21-day notice usually applies if unpaid amounts are reported within three months of the deadline.

In contrast, the lockdown DPN does not offer 21 days for remittance through administration or liquidation. In lockdown vs. non-lockdown director penalty notice, the only option is to pay the funds owed, with directors made personally liable for unreported and unpaid debts. This difference means that if debts remain unpaid, the ATO can seek funds from their personal assets and funds. The ATO can simultaneously issue a lockdown and a 21-day penalty for different debts.

The key to director penalty notice prevention is to ensure your finances never reach a stage where your PAYG, SGC or GST is unpaid. Since 2012, the ATO has made steps to crack down on director responsibilities for tax debts incurred by the company. This means they take a tough stance in recovering funds from the company's director for debts, and there are very few instances where exceptions or defences apply.

Working with an outsourced, qualified accountancy service can ensure your payments are always on track and on time if you are struggling to keep on top of your finances. A professional accountant can prevent you from receiving a director penalty notice by ensuring you pay your GST, SGC and PAYG on time, every time. If you do have unpaid tax debt, your best option is to report it, though this will not prevent a DPN in most cases.

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