It’s decision time.
There is no doubt the Australian Taxation Office (ATO) took a compassionate approach to debt collection at the height of the unprecedented COVID-19 lockdowns, allowing small business more time to get on top of its tax debts.
While the economy is still dealing with the ongoing effects of the pandemic, the newly formed Labor government is pushing forward with plans for “a better future for all Australians”. Those big plans will cost big money.
Whether or not the change in government was the key trigger, Worrells teams across the country are all reporting a significant increase in enquiries relating to director penalty notices (DPNs). The Accountants Daily also reported in early August that DPNs were being issued at a rate of 120/day.
Given your client only has 21 days to deal with a director penalty notice we always recommend that your client should immediately contact their local Worrells office for a free no-obligation consultation to discuss their options.
There are two types of DPNs: non-lockdown DPN, and lockdown DPN.
Non-lockdown DPN
Non-lockdown DPNs are issued to directors who lodge their business activity statements, instalment activity statements and/or superannuation guarantee statements within the below timeframes, but the PAYG withholding, net GST (including WET and LCT) and/or SGC debts remain unpaid:
BAS / IAS: within three months of the due date for lodgement.
SGC: within one month and 28 days after the end of the quarter that the super contribution relates to.
If issued with a non-lockdown DPN, the client has four options to avoid personal liability:
Remit payment of the total amounts due (a payment plan will not result in the director avoiding personal liability).
Appoint a voluntary administrator.
Appoint a small business restructuring practitioner.
Appoint a liquidator.
Assuming your client doesn’t have a valid defence (as outlined in sections 269-35 of Schedule 1 of the Taxation Administration Act 1953) and/or the financial capacity to pay the total amounts due, the key question then becomes: is the business viable moving forward and worth saving?
If the business is viable moving forward, then your client should speak to us about appointing a voluntary administrator, or a small business restructuring practitioner to undertake a corporate restructure.
If the business is no longer viable, then appointing a liquidator to wind up the company is likely to be the best option for your client.
Lockdown DPN
Lockdown DPNs are issued to directors who fail to lodge their business activity statements, instalment activity statements and/or superannuation guarantee statements within three months of their due date for lodgement.
Unless your client has a valid defence (as outlined in sections 269-35 of Schedule 1 of the Taxation Administration Act 1953) for lockdown DPNs, the penalty permanently locks down (hence the name) on the director and there is no ability to remit (i.e. cancel) the penalty, other than by paying the debt in full.
As a result, if the company and/or director doesn’t have the financial capacity to pay the debt, then the director may need to consider personal insolvency options:
Debt agreement.
Personal insolvency agreement.
Bankruptcy.
No matter what type of DPN your client receives, they only have 21 days to deal with the notice. So please press upon your clients to not ignore the notice, as it's now decision time!
Related articles:
Using the personal insolvency solutions to resolve director liability for company tax debt
Director penalty notice regime affected by major change
Tax debts arising from ATO audits
