Directors Penalty Notices: Unforeseen Personal Liability
Tax laws are constantly evolving, and a recent change to the rules regarding Director’s Penalty Notices (‘DPNs’) has the potential to trip up past, current and future company directors who have outstanding or unreported PAYG withholding, Goods and Services tax (GST) or Superannuation Guarantee Charge (‘SGC’) liabilities.
DPNs were amongst the more fearsome of tools wielded by the ATO, and they have recently been made more onerous due to the mandatory use of Single Touch Payroll (‘STP’) and the data sharing between the ATO and the Department of Home Affairs.
Timing Of Being a Director
If you are thinking of or about to become a director of a company, do note that you can become personally liable for a penalty equal to any of a company’s unpaid or unreported PAYG withholding GST including Luxury Car Tax and Wine Equalisation Tax or SGC liabilities.
As a new director, you have 30 days, starting on the day of your appointment, before you become personally liable to director penalties for outstanding PAYG withholding, GST and SGC liabilities. If you resign within the 30 day period, you will still be liable for the unpaid PAYG withholding, net GST and SGC liabilities of the company that were due before your appointment.
You will, however, not be liable to director penalties before your appointment if the Company, within 30 days of the start of your appointment, does one of the following:
- Pays the debt;
- Appoints an administrator; or
- Begins to wind the company up.
Types of DPNs
There are two types of DPNs, dubbed ‘lockdown’ and ‘non-lockdown’, and are issued based on whether BAS, PAYG instalment activity and SGC statements have been lodged within their due dates.
If the SGC statement was lodged by the company within 1 month and 28 days after the end of the quarter that the superannuation charge contribution relates to, but the PAYG withholding, net GST and/or SGC debts remain unpaid, a non-lockdown DPN would be issued. The SGC could be remitted without penalties being issued on the directors personally by exercising one of the following three options, within 21 days:
- Paying the debt;
- Appointing an administrator; or
- Beginning to wind the company up.
If, however, the company failed to lodge its BAS and PAYG instalment activity statement within 3 months of the due lodgement and SGC within 1 month and 28 days after the end of the quarter that the superannuation charge contribution relates to, a ‘lockdown’ notice is issued on the directors, making them immediately and personally liable for the outstanding debt. The only way to remit a lockdown notice is by paying the debt.
The 21-day period for a non-lockdown DPN runs from the date of the DPN Notice, not the date you receive it.
If you are about to become a director, have received a DPN or would like more information on how to prevent being issued a DPN, please contact one of our specialised tax lawyers.