Director Penalty Notices (DPNs) and the Australian Tax Office (ATO)

As a company director, you are responsible for ensuring that your company’s tax and superannuation obligations are reported AND paid on time.  If your returns are not lodged or paid in time, the ATO may attempt to recover the money owing from you personally.

Are you willing, or able, to pay?

If you don’t want to risk being held personally liable it is critical that you understand what options are available to you BEFORE the ATO comes knocking at your door.

Back in June 2023, Smith Hancock reported that the ATO had flagged an important change in its approach to debt collection and insolvency, with a return to full-time status for its collections department post COVID and a renewed focus on the recovery of debts owing.

The key tool the ATO uses in the recovery of these debts is the Director Penalty Notice or DPN.

A standard or non-lockdown DPN is issued when a company has lodged their GST/PAYGW or SGC returns with the ATO, in the required timeframes, but has not yet paid the amounts owing.

Directors who have been issued with a non-lockdown DPN have a period of 21 days to either pay the debt, or place the company into voluntary administration or liquidation, to cancel their personal liability.

A lockdown DPN is issued when the company has not lodged their GST/PAYGW or SGC returns within the required timeframe or paid the amounts owed. 

If a lockdown DPN has been issued, there are no options for the director to cancel the penalty other than to pay the debt in full.  Placing the company into administration or liquidation will NOT cancel the personal liability.

The ATO’s “renewed focus” on debt recovery has seen them issuing 120 Director Penalty Notices per day – a daily rate that has risen fourfold since mid-May – and over 7,000 DPNs have been issued since April 2022. 

We are also seeing the volume of liquidations and administrations increasing to the same levels as 2019-2020 after running at around half of that level for the past two years.

Unfortunately, there is potentially a “perfect storm” building on our economic horizon that will see these figures increase even faster! 

Rising inflation, rising interest rates, and significant supply chain issues are beginning to bite and while the government stimulus in relation in COVID postponed the ‘day of reckoning’ for a large number of businesses, we are forecasting difficult times ahead for many.

So, what do you need to do?

For those businesses who are doing it tough, it is imperative that taxation liabilities continue to be reported on time. 

By ensuring you comply with your relevant reporting obligations, you can avoid being issued with a lockdown DPN that leaves you no other option but to pay the debts personally.

If you have any doubts about your company’s ability to pay its outstanding liabilities, you need to seek immediate advice from an accountant or insolvency practitioner. 

There are strict timelines and regulations surrounding DPNs that you must meet and it is critical that you have an expert on hand to provide advice, sooner rather than later.  Acting quickly can protect you from being held personally liable.

If your business is struggling to meet tax and superannuation obligations, our experienced practitioners can discuss the options you have available to you in your particular situation and how best to proceed. 

In these difficult economic times, don’t risk losing the business and being held personally liable for its debts. For further information call us today on 02 9689 2266 for a confidential discussion.