Early in 2022, the ATO reminded company directors of their legal obligation to meet their Pay As You Go (PAYG) Withholding & Superannuation Guarantee (SGC) obligations (for companies with employees) along with the requirement to remit GST on the due dates.
Directors were warned that in circumstances where companies fail to meet these payment obligations, these amounts will be recovered from the director personally.
It has been reported that the ATO has now sent (and continues to send) up to 50,000 Director Penalty Notice “Warning” letters to Company Directors who are not meeting these obligations. This warning letter is not to be confused with an actual Director Penalty Notice (DPN), rather its purpose is to ensure directors are aware that they a) may not have met payment obligations and b) may be investigated due to non-payment.
The ATO has warned that the DPN regime will continue and whilst we are not expecting an immediate influx of penalty notices, the ATO has made it very clear their focus will be on debt collection for the foreseeable future.
What is a Director Penalty Notice?
Director Penalty Notices were introduced to combat illegal phoenix activity and ensure that company directors were meeting their companies obligations and requirements of PAYG Withholding, Superannuation Guarantee (SGC) and GST. The regime was implemented to prevent companies who were not meeting obligations from being deliberately wound up for the purposes of its director/s avoiding personal liability.
I received a DPN – what now?
In the event that you receive a DPN, there are a series of steps that can be taken that will depend on the circumstances under which the DPN has been issued. If the unpaid amounts for the relevant obligations (PAYG, SGC and GST) are reported within three (3) months of their due date, then there is opportunity (21 days from the issue date of the DPN) to have the penalties remitted by either:
• Paying the liability;
• Placing the company into administration or liquidation; or
• Winding up the company.
If reporting of the unpaid amounts falls outside of the three-month period, the only viable option for remittance is by having the company or director pay the liability in full or in arrangement with the ATO. A director will remain personally liable for these amounts even where they attempt to place the company into administration or liquidation. In some cases, the ATO may use a directors personal tax credits to offset the debt.
It is important to note that the 21-day period after issue of the notice leaves the director very little time to consider their options and take the necessary action. If a director has received a warning that they may receive a DPN, it is essential that they immediately begin planning how they will deal with any penalty they might receive in the future. For a director to be able to achieve remission of any penalties dealt under a potential DPN, they MUST have reported superannuation by the relevant due date.
Even resigned/outgoing directors can still be liable for a DPN for any unmet obligations during their time as appointed director.
It is important to remember that the initial DPN warning letter, along with any subsequent correspondence, will be sent to the appointed director’s residential address as held by ASIC. It is essential that directors are ensuring that their details are up to date on ASIC’s records. Regardless of whether the director sees the letter or not, any DPN sent to this address is deemed to have been received.
Planning on becoming a company director?
If you are planning on becoming a company director, it is essential that you check if the company has any unpaid or unreported PAYG, GST and SGC liabilities. Any unpaid amounts that are outstanding upon your appointment as director become your personal liability.
If you find yourself in this position, you can avoid liability by ensuring that within 30 days of your appointment, your company does one of the following:
- Pays all outstanding obligation debts in full;
- Appoints an administrator;
- Appoints a Small Business Restructuring Practitioner; or
- Begins to be wound up.
The ATO are committed to debt recovery and a DPN will not go away on its own. The appropriate response will depend on the director’s and the company’s specific circumstances. If you do receive a warning letter, ensure you arrange a meeting with your adviser as soon as possible to plan and strategise how you and your company will handle a potential DPN and what steps need to be taken.
Time is of the essence when it comes to Director Penalties, and acting quickly and efficiently will greatly increase the director and company’s chance of a positive outcome.
If you have received a DPN warning letter, or have any questions or concerns regarding your obligations as a company director, get in touch with us or give us a call on 07 5598 3800.