What is a Director Penalty Notice (DPN)?
A DPN is a are notice issued by the Australian Taxation Office (ATO) to a director of a company if they have not met their debt obligations with respect to PAYG withholding, Superannuation Guarantee Charge and Goods and Services Tax (GST). If a DPN is issued, subject to the conditions of the DPN, it will hold the director personally liable to meet the company’s tax and superannuation obligations.
Since 13 May 2022 the ATO is suspected to be issuing around 30-40 DPNs each day with expectations of that number to increase. The ATO’s sudden aggressive stance in this regard is likely due to the easement of the associated leniencies granted by the ATO to both directors and companies following the COVID-19 pandemic. It appears such leniencies have ended in light of an estimated 52,000 DPNs being issued by the ATO as of 16 May 2022.
Will I receive a DPN?
DPNs are issued to directors who have breached their obligations with regard to the payment of the following company taxes:
- PAYG – Companies with employees have a legal responsibility to withhold Pay as You Go (PAYG) from employees’ wages and to remit these withholdings to the ATO which ensures the respective employees meet their taxation obligations. If this income tax has not been remitted to the ATO within 3 months of the due date for lodging the return, it can satisfy the criteria for the ATO to issue the DPN.
- Superannuation -The ATO announced on 13 May 2022 that it has recommenced collection activities on taxpayers who have failed to pay tax and/or have unpaid failed unpaid superannuation guarantees. Under the Superannuation Act 1922 (Act), the company employer must pay a percentage of your earnings into a nominated superannuation account. If the required superannuation payments have not been made within 3 months of the respective lodgement date, it can satisfy the criteria for the ATO to issue the DPN.
- GST – The New Tax System (Goods and Services Tax) Act 1999 (Cth) emphasises that the majority of goods and services sold or consumed in Australia possess a Goods and Services tax which must be paid from the company to the ATO. If such obligations are breached by a company, the director will potentially become liable to receiving a DPN from the ATO.
Types of DPNS
There are two types of DPNs:
- A 21-Day DPN; and
- A Lockdown DPN.
The 21-Day DPN, commonly known as a Non-lockdown DPN, is the most common type of DPN issued by the ATO. This DPN may be issued where:
- Business Activity Statements (BAS) and Instalment Activity Statements have been lodged within three months of the due date; and
- Superannuation Guarantee Charge (SGC) statements have been lodged within one month and 28 days of the due date; and
- the company has not paid the relevant amounts owed.
Furthermore, the Non-Lockdown DPN gives the opportunity for a director who has received the notice options to avoid the personal liability imposed by the DPN. These options include:
- for the company to pay the debt; or
- liquidate the company; or
- appointing a Small Business Restructuring Practitioner to restructure the company with the purpose of repaying the debt; or
- negotiate a payment arrangement with ATO.
If any of these options are satisfied with within the 21 days of the ATO sending the DPN, the Director will not be held responsible for the personal liability imposed by the DPN.
While the personal liability under a Non-Lockdown DPN is also imposed under a Lockdown DPN, a Lockdown DPN provides no avenue for a director to which he/she can avoid this liability. Once the ATO sends this type of DPN the director is automatically and irrevocably considered personally liable. A Lockdown DPN is issued where a company has not lodged its BAS or SGC statements within the timeframes referred to above and have also not paid the relevant amounts owed to the ATO.
How to avoid getting a DPN
If you are a director of a company which has members in its employ, the best method of avoidance is prevention. By staying on top of your GST, PAYG and Superannuation Guarantees obligations you avoid any footing by which the ATO is able to issue these DPNs. The ATO issues such DPNs with the punitive and didactic purpose to dissuade directors from negating their obligations under the Act. Thus, if the above obligations are adhered to, then as a director you are protected from receiving these Notices.
Furthermore, submitting Business Activity Statements and Instalment Activity Statements with regard to the mentioned obligations reduces the capacity of the ATO to issue the more severe Lockdown DPNs. It is clear that with the pandemic subsiding, so are the associated leniencies previously granted by the ATO. This shift of stance emphasises the importance of understanding these DPNs, the penalties they possess and also the avenues available to avoid and prevent the imposed liabilities.
***Assisted by Connor Wilkinson***