Tax Debts – You Could Lose Your Personal Assets

You Can be held Personally Liable for a Company Tax Debt – So Act Now!

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Director Penalty Notice

Directors may be held personally liable for a Company tax debt. Act now to avoid liability under 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 Directors’ Personal Assets may be lost

A Director Penalty Notice (DPN) may be issued by the Australian Taxation Office (ATO) and directors can be held personally liable for Company tax debts.

Directors may be held personally liable for unpaid PAYG and unpaid superannuation. From 1 April 2020 a director can also be held personally liable for unpaid GST.

What is a Director Penalty Notice?

A DPN is a recovery tool of the ATO that may result in a director losing the protection of the company structure. If that occurs, a directors’ personal assets will be exposed and potentially available to meet a 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 lodging its BAS returns, or following a long history of broken promises, failed repayment arrangements, or when the ATO has simply lost faith in the credibility of the director.

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How does a Director Penalty Notice work?

A Director Penalty Notice works in 2 distinct ways in respect of PAYG & GST – BUT for superannuation, a director is immediately personally liable.

1. Where a Director Penalty Notice is issued, and where all BAS returns are up to date, with all returns having been lodged within 3 months of the due date for lodgement, (even though there may be an outstanding PAYG & GST debt), a director will be allowed 21 days to comply with the Notice and thereby AVOID personal liability for the Company PAYG & GST Tax Debt.

In this situation, to comply with a Director Penalty Notice and avoid personal liability for a Company PAYG & GST 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 within the 21 days, he/she will become personally liable for the unpaid PAYG & GST of the Company.

2. Where BAS returns have been lodged more than 3 months after the due date for lodgement, directors are immediately personally liable for the company PAYG & GST tax debts.

This means that if the company cannot pay, the ATO may pursue the director personally. This will result in the loss of personal assets or even personal bankruptcy.

Where returns have not been lodged at all, the ATO can simply estimate their claim, or undertake an audit and then issue a Director Penalty Notice based on that estimate. Again, this leads to the loss of personal assets or even bankruptcy of the directors.

BUT WITH RECENT CHANGES, SUPERANNUATION IS DIFFERENT a director is immediately liable for unpaid superannuation as soon as its not paid or reported. This means that at any time, the ATO can issue an estimate and/or a Director Penalty Notice based in respect of unpaid superannuation.

Call us now regarding the two types of Director Penalty Notices

  • Director Penalty Notice where 21 days is allowed to avoid personal liability
  • Director Penalty Notice with no escape of personal liability

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