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Director Penalty Law Extended
Director penalty notices (DPNs) have been enforced for some years now to recover unpaid PAYG withholding and superannuation. This law means that if a company fails to meet PAYGW and superannuation obligations on time, they may become personally liable for the amount owing as well as penalties.
The new law, starting on 1 April 2020, extends the penalty regime to allow recovery of unpaid GST, WET and LCT. The new provisions increase the personal risk that directors take in committing to pay ATO obligations.
The director penalty notices have narrow time limits in which to be addressed, that is, 21 days from the date of issue. Directors who receive a DPN must make contact with the ATO within 21 days. While the new law is intended to pursue illegal phoenix activity and non-compliant employers, there may be legitimate operators with cash flow difficulties who are caught out by this law. If a DPN is received and the director objects, they will need to contact the ATO as soon as possible to discuss options for disputing the notice.
A director taking on a new position for an existing company should check the status of financial obligations of that company before accepting the position, as existing debts may still apply. Similarly, directors who have resigned may still be liable for debts incurred while they were a director; resignation of directorship does not necessarily mean avoiding penalties.
Advise Your Director Clients Now
Talk to your company director clients and make sure they know what their legal responsibilities as a director are, as well as what they are personally liable for. Advise them of the new provisions of the director penalty regime, and also encourage them to consider any personal guarantees they have given to suppliers, to ensure they understand the full extent of their personal financial liability.
Always encourage directors to get lodgements in to the ATO on time, even if they are unable to pay the full amount on time. If there is a payment plan in place this will reduce the likelihood of being issued with a DPN.
When having this conversation with a client, also ask them to check their contact details with ASIC. If a notice is issued to an old address listed on ASIC, and the director does not act on the notice within 21 days, legal recovery proceedings will be initiated regardless.
If a DPN is issued, the director needs to make arrangements for paying the debt. ATO recovery options include garnishee notices, offsetting tax credits against director penalties, and legal proceedings. We suggest that if you have any concerns about the long-term viability and solvency of a client’s business, talk to them and/or their tax agent.
ATO Director penalty regime
webpage for more detail.