What is a Director Penalty Notice
The Australian Tax Office (ATO) is able to send a Director Penalty Notice to a company director which makes the director personally liable for two company tax debt types. Company directors can become liable for Pay As You Go tax (PAYG) and Superannuation Guarantee Charges (SGC) through a Director Penalty Notice. This article offers directors a comprehensive overview of what circumstances lead to a Director Penalty Notice and what to do when one is issued.
Australian laws tightened in 2012, making it easier for a director to become personally liable for company tax debts. This was intended to change the approach company directors took towards tax debts and encourage responsible actions. The scope of the Director Penalty Laws was widened, as was the personal liability of directors. Legal action under a Director Penalty Notice cannot be taken against your company if you keep your Business Activity Statement (BAS) returns up to date and lodge them on time. Failure to do this, however, may result in the ATO issuing a Director Penalty Notice.
Director Penalty Notices can take two forms. A ‘traditional’ Director Penalty Notice provides the director with 21 days in which they can take action to avoid the forthcoming personal liability. A ‘lockdown’ Director Penalty Notice, however, automatically makes the director personally liable for any PAYG or SGC in the event of company returns not being lodged on time. Once a ‘lockdown’ Director Penalty Notice has been served, the director cannot avoid the subsequent liability.
In the event of a traditional or 21-day Director Penalty Notice, the director has four options:
- Pay the company debt
- Put the company into Liquidation
- Put the company into Voluntary Administration
- Create a payment arrangement with the ATO
As soon as a director receives a traditional or 21-day Director Penalty Notice, they should contact an advisory body to discuss their best options moving forward.
Since June 2012, a lockdown Director Penalty Notice now covers a wider remit within which a director can assume personal liability. This includes:
- The Superannuation payable to employees (under the Superannuation Guarantee law)
- Directors becoming automatically personally liable when PAYG and SGC debts go unpaid and/or unreported for three months
- Restricted access to PAYG and withholding credits
- Backdating personal liability on behalf of the director for PAYG liabilities when they go unpaid and/or unreported for three months beyond their due date.
The ATO must estimate the amount of tax owed by a company in the absence of lodged returns before issuing the Director Penalty Notice. A newly appointed company director is not personally liable for company debt until 30 days has passed. A director who has suffered from an illness which prevented their participation in company management may defend themselves against the notice, as too can a director who can prove they took all reasonable steps intended to ensure the company’s compliance with taxation obligations. You cannot ignore a Director Penalty Notice and should it go to the wrong address in the event of the director moving house but failing to update the ATO, you are still liable.
If you have received a Director Penalty Notice, either traditional or lockdown, contact Menzies Advisory immediately for comprehensive, confidential advice on how to proceed.
Menzies Advisory Liquidation & Receivers are Certified Practicing Accountants and Registered Liquidators with over thirty years’ experience in commerce and insolvency. Company directors, accountants, lawyers and business consultants turn to us for expert, compassionate advice in difficult times. Our professional consultants implement the most practical solutions to meet your complex business and financial issues.