Director Penalty Notice
As a director you may be held personally liable for a Company tax debt. The ATO may do this by issuing a Director Penalty Notice.
A Director Penalty Notice is:
Issued by the ATO
Can Make a Director Personally Liable
Exposes Personal Assets to Loss
A Director Penalty Notice can attach liability for company debts to the director personally.
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Understand the Risks
A Director Penalty Notice (DPN) is issued by the Australian Taxation Office (ATO) and it can make a director personally liable for a Company tax debt.
Tax debts that a director may be held personally liable for include unpaid PAYG and unpaid superannuation guarantee payments. At this stage, a director cannot be held personally liable for unpaid Company Tax or GST.
What is a Director Penalty Notice?
This means the protection afforded by a company structure may be lost and if that occurs, a directors’ personal assets will be exposed and potentially become available to pay the Company’s tax debt.
When is a Director Penalty Notice issued?
A Director Penalty Notice is usually issued when a company is significantly behind in remitting tax or its BAS returns, or following a long history of broken promises, failed payment arrangements, or when the ATO has lost faith in the credibility of the directors.
How does a Director Penalty Notice work?
A Director Penalty Notice works in 2 distinct ways.
1. Where a Director Penalty Notice is, or is likely to be issued, and where BAS & Super returns are up to date, with all returns having been lodged within 3 months of the due date, (even though there is outstanding PAYG and super), a director will be allowed 21 days to comply with the notice to AVOID personal liability for the Company Tax Debt.
To comply with a Director Penalty Notice and avoid personal liability for a Company tax debt, a Director must, within 21 days of the date on the notice:
- pay the debt
- appoint a voluntary administrator
- appoint a liquidator
If a director fails to comply, strictly within the 21 days, he/she will become personally liable for the unpaid taxes of the Company.
2. Where BAS & Super returns have been lodged more than 3 months after the due date for lodgement, a director is immediately personally liable for the company tax debts.
This means that if the company cannot pay, the ATO will pursue the director for the unpaid PAYG and super debt of the company.
Where no returns have been lodged, the ATO can undertake and audit or simply issue an estimate of the debt and then issue a Director Penalty Notice based on that estimate.
See the two types of Notices
- Director Penalty Notice where 21 days is allowed to avoid personal liability
- Director Penalty Notice with no escape of personal liability