The ATO had hit the brakes in collecting tax debts since the start of the COVID-19 pandemic. The ATO however has since the start of 2022 gradually increased its efforts to collect monies owed.
Issuing director penalty notices (DPNs) is one way that the ATO can recover tax debts owed by a business. It essentially make a director personally liable for the debts of the company.
There are 2 types of DPN that the ATO can issue, these being:
- ‘21-Day’ or ‘Ordinary’ DPN – these are issued to directors where their companies have been lodging their Superannuation Guarantee Charge Statements (SGC Statements) and/or Business Activity Statements (BAS) within the time frame required; and
- ‘Lockdown’ DPN – these are issued to directors whose companies have either not lodged their SGC Statements and/or BAS on time, or not at all.
More information in relation of the 2 types of DPNs can be found here.
Avoiding Personally Liability
There is very little a director who has been issued with a Lockdown DPN can do avoid personally liability other than paying the company’s tax debt.
As for the 21-Day DPN, directors previously have several options to avoid personally liability. They can do either of the following within 21 days of the date of the DPN:
- Paying the company’s tax debt;
- Have the company enter into a payment arrangement with the ATO;
- Placing the company in liquidation;
- Appointing a small business restructuring practitioner; or
- Appointing a voluntary administrator.
It appears that the ATO has recently changed its position. Directors have been receiving 21-Day DPNs which set out the following options for them:
- Paying monies owed by the company to the ATO;
- Placing the company under voluntary administration;
- Appointing a small business restructuring practitioner to the business; or
- Placing the company in liquidation.
The difference with the options available is the lack of payment arrangement as an option for directors. In other words, directors can no longer avoid personal liability by having the company enter into a payment arrangement with the ATO within 21 days.
How We Can Help
With the payment arrangement option removed, you do not want to wait for the ATO to issue a DPN. Otherwise you may have no choice but to liquidate you company or appoint an administrator, which can be a costly affair.
You should be proactive and take steps to deal with you company’s tax debts sooner rather than later. Negotiating a payment arrangement with the ATO can prevent the ATO from issuing a DPN.