Recent criminal changes to the Director Penalty Notice Regime

The Director Penalty Notice (“DPN”) regime has been around for many years whereby the corporate veil can be lifted, and the directors of an organisation held personally liable for certain obligations to the Australian Taxation Office (“ATO”).  For the most part, this meant PAYG Withholdings.  In more recent times, obligations for superannuation have been included in the DPN regime.  

New provisions were introduced on 1 April 2019, whereby (in addition to existing monetary penalties), criminal sanctions can now apply in relation to unremitted obligations for superannuation.  This article focuses on the new criminal sanctions associated with superannuation obligations.

Under the new provisions the Commissioner may by written notice give a direction requiring the director to pay to the Commissioner, an amount of Superannuation Guarantee Charge (“SGC”) that is payable under the Superannuation Guarantee Administration Act (“SGAA”).  The SGC is made up of the shortfall amount, interest on the shortfall amounts (currently 10%), and an administration fee of $20 per employee, per quarter. The Commissioner can also issue a direction based on an estimate.  The direction to pay can be issued for amounts payable on or after 1 July 2018.

The direction does not create a separate liability to pay the amount outstanding, however, it may result in an offence having been committed if the amount has not been paid.

In deciding whether to issue a direction to pay, the Commissioner must take into account a number of matters, which include:

•  The history of compliance with meeting the SGC;

• The history of compliance with other tax related liabilities;

• The amount of the debt having regard to the size and nature of the business;

• Any steps that have been taken to discharge the liability, or dispute it, and any other matter that the Commissioner considers relevant.

The direction from the Commissioner must set out:

•  The amount that is required to be paid to the Commissioner;

• Where relevant, the quarter to which the obligation relates;

• The period before which the obligation must be discharged (which must end at least 21 days after the date the direction is given);

• The consequences of failing to comply with the direction; and

• An explanation of how the Commissioner’s decision may be reviewed.

Where a direction has been given by the Commissioner, and the liability in the direction has not been discharged before the timeframe listed in the direction, the director to whom the notice is given is deemed to have committed an offence.

The offence is a strict liability offence, for which the penalty is currently 50 penalty units ($10,500), or imprisonment for 12 months, or both.

The offence provisions will not apply if all reasonable steps were taken to comply with the direction before the end of the period specified, and all reasonable steps were taken to ensure that the liability was discharged before the direction was given.  The burden of proof in relation to these issues is borne by the defendant director.

These new provisions operate alongside the existing DPN provisions to provide greater powers to the ATO in seeking to ensure that companies meet their statutory obligations.

There has also been a further tightening in the “Lock Down” provisions relating to superannuation obligations.

Previously, an obligation for superannuation became “Locked Down” if the unpaid amounts were not reported to the ATO before the end of three (3) months from the due date for payment.

Under the new provisions, a company is required to report the unremitted superannuation prior to the due date for payment.  Accordingly, the amounts need to be reported to the ATO prior to the 28th day after the end of the quarter for which the superannuation period relates.

Once “Locked Down”, the appointment of an insolvency practitioner to the company, will not avoid the personal liability of the director(s). Accordingly, it becomes a personal obligation of the director, which the ATO may seek to pursue at a later time.  It is also noted that with the commencement of the Single Touch Payroll requirements, the data matching tools available to the ATO will be increased.  It follows, that the ATO will be in a far greater position to consider what amounts are yet to be remitted, and may result in the greater use of the DPN regime by the ATO.

Given the possibility of criminal sanctions and the personal obligations imposed on directors under the DPN regime where a company is struggling to meet its statutory obligations, it is imperative to address these issues early.

If you, or your clients are having difficulty in meeting your obligations, inclusive of superannuation, contact Smith Hancock so we may discuss the options available to you.