Understanding Director Penalty Notices: A Crucial Guide for Company Directors

Do you understand Director Penalty Notices and your obligations?

As a company director, it is imperative to understand your obligations and the potential consequences of failing to meet them. One of the most significant risks you face is receiving a Director Penalty Notice (DPN) from the Australian Taxation Office (ATO). Learn more about the importance of understanding your obligations, the causes of receiving a DPN, the actions you should take upon receiving one, and how to remedy your situation. Additionally, we will discuss insights from Bruce Gleeson of Jones Partners, as shared in his conversation on The Business Behind Your Business podcast.

Why Understanding Your Obligations is Crucial

Being a company director comes with a range of responsibilities, including ensuring that your company complies with its tax and superannuation obligations. Failure to meet these obligations can result in personal liability for unpaid company debts. The ATO can issue a DPN to recover unpaid amounts of Pay As You Go (PAYG) withholding, Goods and Services Tax (GST), and Superannuation Guarantee Charge (SGC) from you personally. Understanding these obligations is crucial to avoid severe financial consequences and to ensure the smooth operation of your business.

According to the ATO, “As a company director, you are responsible for ensuring that the company’s tax and superannuation obligations are reported and paid on time. If your company does not pay certain liabilities by the due date, we can recover these amounts from you personally as a current or former company director.” 

Causes of Receiving a Director Penalty Notice

A DPN is issued when a company fails to meet its tax and superannuation obligations. The primary causes include:

• Unpaid PAYG Withholding: When a company withholds tax from employees’ wages but fails to pay it to the ATO
• Unpaid GST: When a company collects GST from customers but does not remit it to the ATO
• Unpaid SGC: When a company does not pay the required superannuation contributions for its employees

The ATO issues two types of DPNs: lockdown and non-lockdown. A non-lockdown DPN is issued if the company lodges its Business Activity Statements (BAS) and SGC statements within the required timeframes but fails to pay the amounts owed. A lockdown DPN is issued if the company fails to lodge these statements within the required timeframes.

Actions to Take Upon Receiving a Director Penalty Notice

Receiving a DPN can be daunting, but prompt action is essential. Here are the steps you should take:

1. Review the Notice

Carefully read the DPN to understand the amounts owed and the deadlines for action.

2. Seek Professional Advice

Contact your external accountant or a professional like Bruce Gleeson from Jones Partners to discuss your options and develop a plan of action.

3. Take Immediate Action

To remedy your situation and avoid personal liability, you must take one of the following actions within the specified timeframe (usually 21 days for non-lockdown DPNs):

• Pay the Debt: Ensure the company pays the outstanding amounts in full
• Enter a Payment Arrangement: Negotiate a payment plan with the ATO to pay off the debt over time
• Appoint a Voluntary Administrator: Engage a voluntary administrator to manage the company’s affairs and debts
• Appoint a Small Business Restructuring Practitioner: Implement a restructuring plan to address the company’s financial difficulties
• Place the Company into Liquidation: Liquidate the company to settle its debts

Insights from Bruce Gleeson

In a recent episode of The Business Behind Your Business podcast, Bruce Gleeson from Jones Partners shared valuable insights on dealing with DPNs and the ATO. Bruce emphasised the importance of not ignoring the ATO and taking proactive steps to address tax debts. He highlighted that the ATO is in full collection mode and that directors must stay on top of their obligations to avoid severe consequences.

Bruce also discussed the significance of lodging BAS and SGC statements on time, even if the company cannot pay the amounts owed immediately. This can prevent the issuance of a lockdown DPN and provide directors with more options to address their tax debts. Additionally, Bruce advised directors to keep their residential addresses updated with the company’s register to ensure they receive important notices promptly.

When and How to Contact Bruce Gleeson

If you receive a DPN or are struggling to meet your company’s tax obligations, it is crucial to seek professional advice. Bruce Gleeson from Jones Partners is an experienced insolvency practitioner who can provide valuable guidance and support. Contact Bruce as soon as you receive a DPN to discuss your options and develop a strategy to address the situation. You can reach Bruce through the Jones Partners website.

Understanding Director Penalty Notices and your obligations as a company director is crucial to avoid severe financial consequences. By taking prompt action and seeking professional advice, you can navigate the complexities of DPNs and protect yourself from personal liability. Remember, the key to managing your obligations is staying informed, proactive, and engaged with the ATO and your professional advisers. Contact Pretium Solutions to improve your business systems and prevent these kinds of stressful financial situations from occurring.