If you are a Director of a company and your PAYG and Superannuation Guarantee Charge Obligations are not up to date, you could find yourself the subject of an ATO Director Penalty Notice (DPN) and incur personally liability for those outstanding debts.
The ATO issues DPNs as part of its debt recovery actions and once issued you have 21 days to either:
cause the Company to pay the debt (or pay it yourself); or
appoint a voluntary administrator; or
put the Company into liquidation.
A failure to comply within 21 days will automatically make you personally liable for the unpaid super/PAYG, subject to the limited defences discussed below.
You should also be aware that if the company’s BAS returns are more than 3 months old, the serving of the DPN can give rise to personal liability for the directors for Company tax debts EVEN IF they then put the company into liquidation or voluntary administration within the 21 day period.
Where no returns have been lodged, the ATO can undertake an audit and simply issue an estimate of the debt and then issue a DPN based on that estimate, so a failure to report does not necessarily provide any protection to personal liability.
Under the legislation a director cannot avoid liability under a DPN by claiming they did not receive it – the ATO merely needs to prove that it was properly posted by normal post to evidence receipt.
There are some limited defences to liability arising under a DPN. A Director is not personally liable if they can prove:
they were not capable of acting as a Director of the company during the relevant period that the debts arose and were not paid due to sickness or some other good reason;
they took all reasonable steps to ensure that:
the directors caused the company to comply with its obligations;
the directors caused an administrator of the company to be appointed;
the directors caused the company to begin to be wound up, and
there were no reasonable steps that could have been taken to ensure that any of the above happened.
Whether a course of action is 'reasonable' and whether there is sufficient evidence to support the argument will vary on a case-by-case basis and requires advice.
Cove Legal are experts in assisting our clients with contentious tax matters and insolvency proceedings and provide advice on ATO payment plans and all other aspects of ATO debt recovery action. Roger Blow acted extensively for the ATO in Perth for over 5 years and has specific expertise in tax related disputes.
If you would like advice or assistance with any legal matters involving the ATO, we would be keen to hear from you. Please contact:
Roger Blow, Principal, Ph: +61 8 6381 0327 or firstname.lastname@example.org
This publication is not intended to provide and does not provide legal advice. You should seek professional legal advice relating to your specific situation(s) before taking any action based upon its contents.