Throughout the Covid-19 pandemic the ATO has mostly ceased taking any type of recovery action to recover debts which it was owed. As a result of this, the total collectable tax debt which the ATO is owed has increased from $26.5 billion in 2019 to $38.5 billion at 30 June 2021.
However, the ATO’s approach to debt collection is changing and we have recently seen a number of warning letters from the ATO threatening to issue directors with Director Penalty Notices if a company’s tax is not paid or a payment arrangement not entered into.
How do Director Penalty Notices work?
Director Penalty Notices make a company’s directors personally liable for unpaid GST, PAYG Tax and superannuation (and certain other taxes). There are two types of Director Penalty Notices, being:
- 21 Day Director Penalty Notices which apply if a company has made relevant taxation lodgements within required timeframes; and
- Lockdown Director Penalty Notices which apply if a company makes relevant taxation lodgements outside required timeframes.
To avoid Lockdown Director Penalty Notices, a company must lodge Activity Statements within three months of being due, or if superannuation is not paid, lodge SGC Statements within one month of superannuation being due for payment. If lodgements are made outside these timeframes, the ATO can issue Lockdown Director Penalty Notices. Directors cannot avoid liability for the debts of Lockdown Director Penalty Notices and the notices can be issued after a company has been placed in liquidation and/or deregistered.
If lodgements are made within required timeframes the ATO can issue 21 Day Director Penalty Notices, however, a director can avoid liability under this type of notice if they place a company in liquidation or voluntary administration or appoint a small business restructuring practitioner within 21 days of the date of the notice.
Other types of ATO recovery action
Contact us for assistance
At Pearce & Heers, we have had experience providing strategies to deal with the ATO for more than 20 years. Our aim to is to assist businesses in dealing with debts before it is too late. If you have unmanageable debts or have received a Director Penalty Notice, contact our Brisbane or Gold Coast Offices for a free no obligation discussion about your circumstances.