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Director Penalty Notices – What Directors Should Know?

As the director, should you fail to meet a PAYG withholding, GST or SGC liability in full by the due date, you could become personally liable for director penalties equal to the amount owed.

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The ATO is in pursuit of debts.

The ATO is resuming debt recovery action. Director Penalty Notices are now being issued following a hold on debt collection due to COVID.

Tens of thousands of letters to directors notifying them about impending action have been sent since April 2022. Director penalty notices (DPNs) have been issued to directors who have not replied to the ATO letters and have not engaged with the ATO about their debts.

According to Accountants Daily, a frighteningly large amount of DPNs were issued at 120 per day in early August. That’s a concerning number of DPNs to be issued quickly.

Small business owners must know their obligations should they receive a DPN from the ATO.

What is a Director Penalty Notice (DPN)?

Company directors ensure that the business tax and superannuation obligations are paid on time and reported. As the director, you could become personally liable for director penalties equal to the amount owed if you fail to meet a PAYG withholding, GST or SGC liability in full by the due date.

But before the ATO can take action to recover penalties from you, they must first issue a DPN stating the unpaid amounts and remission options available. If you fail to comply, you enter potentially dangerous territory, including initiating legal proceedings or offsetting personal tax credits. Avoid this at all costs!

There are two types of DPNs that all business owners should be aware of.

Lockdown DPN

Lockdown DPNs are issued to directors who fail to lodge business activity statements, instalment activity statements and superannuation guarantee statements within three months of their due date for lodgement. The only option for directors to avoid personal liability is if, within 21 days of the DPN being issued, the company pays the debt, appoints an administrator, appoints a Small Business Restructuring Practitioner (SBRP), or places the company into liquidation.

Non-lockdown DPN

Non-lockdown DPNs are issued to directors who lodge their business activity statements, instalment activity statements and superannuation guarantee statements within three months of the due date, but the PAYG withholding, net GST (including WET and LCT) and SGC debts remain unpaid.

Talk to Clout Advisory about your liabilities

Are you clear about what you owe to the ATO? Are you aware of the extent and financial implications of your liability? Have you given director guarantees to any suppliers that might increase your liability?

Legal recovery will go ahead if a notice is issued to an incorrect address listed on ASIC. This will happen regardless of whether the director receives the notice or if contact is not made within 21 days of the letter’s date.

Ensuring you know your company’s ATO debts and actively engaging with the ATO to pay this debt is imperative. If you have received a letter from the ATO debt recovery, talk to us so we can look at the available options with you.

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