Director Penalty Notice – things to know and watch out for
Many directors of companies operate on the assumption that by running their business through a corporate structure they are personally protected from company debts. However, the concept of “corporate protection” does not extend to the Pay As You Go (“PAYG“) tax and Superannuation Guarantee Charge (“SGC“) liabilities of a company. Under the Taxation Administration Act (Cth) 1953 and Tax Laws Amendment (2012 Measures No. 2) Act 2012, the obligation to pay these liabilities can be enforced against the directors personally. Accordingly, it is important for directors to understand the implications of this regime and a Director Penalty Notice (“DPN”).
What is a DPN?
If a company’s PAYG or SGC remains unpaid or unreported for three months after becoming due and payable, the Australian Taxation office (“ATO”) has the discretionary power to send a director of a company a DPN. This notice can make the director personally liable for the amount the company should have paid to the ATO.
What directors can do when issued with a DPN?
The director can extinguish their personal liability by doing any of the following within 21 days from the date of the notice:
- pay the debt;
- enter into a repayment agreement to pay the debt;
- demonstrate that the company was placed into administration or liquidation before the DPN was issued;
- enter into personal insolvency;
- demonstrate that the director was no longer acting before the notice was issued;
- prove that the director was ill and could not take part in the management of the company; or
- demonstrate that the director took all reasonable steps to ensure the company complied with its obligations.
If the director does not act within the 21 day period, the ATO may then commence proceedings to recover the outstanding PAYG and/or SGC from the director.
What should directors be aware of?
Following the strengthening of the statutory regime in 2012, directors need to be more vigilant in ensuring their personal details are up to date. The WA Court of Appeal case of Deputy Commissioner of Taxation v Roche [2014] WASC 222, put this matter beyond doubt. There are now deeming provisions that do not require that a DPN be brought to the recipient’s attention in the manner in which the law usually provides. All that is required is for the DPN to be left at the address noted on the ASIC records for the company. A DPN is then effective at the time that the ATO posts the notice, regardless of whether delivery actually occurs or how long the notice takes to get delivered. In short, it is now easier for a director, to be stung with a liability under a DPN.
The information in this document represents general information, and should not be relied for your specific circumstances. If you require legal advice and assistance on the matters contained or associated in this document you should contact Trinity Law. Subject to the limits of the law, Trinity Law disclaims any liability on persons relying on this document.
