True or False?
“Directors can avoid liability by entering into a payment plan with the ATO within 21 days.”
False!
A payment plan merely allows the Director to repay outstanding debts incrementally. The Director is still personally liable for the debt after the end of the 21-day period. If the payment plan is defaulted, the ATO can initiate proceedings against the Director personally, seeking recovery of any outstanding debts.
Did you know?
If you are a Company Director, you are legally responsible for the timely reporting and payment of your company’s tax and superannuation obligations.
It has been reported that the ATO intends to utilise the DPN regime more often in 2024 as the ATO ramps up its actions to recover $30 billion in overdue small business tax.
The ATO’s Director Penalty Regime allows them to hold Directors personally responsible for outstanding amounts related to:
- Pay As You Go Withholding (PAYGW)
- Goods and Services Tax (GST)
- Superannuation Guarantee Charge (SGC).
A director penalty is automatically produced on the day the company is due to fulfill its obligation, without the requirement for formal notices or actions from the ATO. However, the Commissioner cannot initiate recovery proceedings for a director penalty until 21 days after issuing a Director Penalty Notice (DPN) to the director.
It’s important to note that even if you resign as a director, you can still be liable for director penalties associated with the company’s obligations. Similarly, taking on the role of a new company director could mean personal liability for any existing outstanding amounts of the company.
Director Penalty Notices come in two forms: non-lockdown DPN and lockdown DPN.
Non-Lockdown (Standard) DPN
A non-lockdown DPN can be issued to a Director of a company where the BAS, IAS and/or Super Guarantee Charges (SGC) have been lodged, but the relevant debts have not been paid. The notice provides the Director with 21 days to take one of the following actions:
- Pay the debt/s in full; or
- Appoint a Voluntary Administrator (VA) over the Company; or
- Appoint a Small Business Restructuring (SBR) Practitioner for the Company; or
- Appoint a Liquidator over the Company.
Lockdown DPN
A lockdown DPN can be issued to a Director where the company has failed to lodge its BAS, IAS and/or SGC statements within three months of the due date. The penalty permanently locks down on the Director and there is no ability to remit the penalty, except by paying the debt in full.
The ATO can issue lockdown DPN’s on Directors even after the Director has:
- Placed the Company into Liquidation; or
- Appointed a Voluntary Administrator over the Company; or
- Appointed a Small Business Restructuring Practitioner over the Company.
If you are a Director, it is essential that you are aware of and understand your obligations. More importantly, how you may not be able to avoid personal liability of certain company debts, including tax debts, even if you appoint an insolvency practitioner over the Company.
In light of the ATO’s increased use of the DPN regime, the landscape of director liability is shifting, and understanding your responsibilities is paramount. As we brace for increased ATO actions in 2024, now is the time to act wisely.
Get in touch with one of our expert accountants or advisors and find out how we can help you ensure you are meeting your director responsibilities and mitigating risk.
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The material and contents provided in this publication are general and informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.
