Director Penalty Notice Defence: Proven Solutions

The ATO recently issued over 50,000 warning letters to directors whose companies have existing ATO debt and have not taken the necessary steps to manage this debt.

The ATO has the power through the DPN regime to make company directors personally liable for their company’s debts for unpaid taxes including Goods and Services Taxes (GST), Pay-As-You-Go withholding liabilities (PAYGW), and Superannuation Guarantee Charges (SGC).

If you receive a DPN (usually sent to the directors' personal address) and do not act within the specified timeframes, the ATO may garnish funds from your personal bank account, offset your personal tax refunds, or commence legal recovery proceedings against you, which may ultimately result in personal bankruptcy.

You can avoid personal liability by taking one of the following actions within twenty-one (21) days of a DPN being issued:

1. Paying the amount owing on the DPN; or
2. Appointing an insolvency practitioner to the company.

If you have received a ‘Lockdown DPN’, you can only avoid personal liability by paying the amount owing.

The option to appoint an insolvency practitioner will not avoid personal liability for a Lockdown DPN.

However, it may limit your risk of further interest, penalties and other claims that may result if the company continues to trade.

For GST and PAYGW debts, a Lockdown DPN may be issued when a BAS is lodged more than three months after the due date.

For SGC debts, a Lockdown DPN may be issued when an SGC Statement is lodged after its’ due date, being one month after the Superannuation Guarantee payment was due.

The Director Penalty Regime is a mechanism used by the Australian Taxation Office (ATO) to hold company directors personally liable for certain tax debts of the company. It is crucial for directors to understand their liabilities and available defences when faced with a Director Penalty Notice. Seeking expert advice promptly is key to protecting personal assets and navigating this complex area of tax law effectively. For more information, speak to your local RSM adviser. 

The liability under a Director Penalty Notice is enforced by the Australian Taxation Office (ATO) through various means, including legal actions such as garnishee notices, director penalty notices (DPN), and even potential liquidation of the company. It is essential for directors to seek expert advice and understand their rights and options to effectively defend against these enforcement actions. Our team at RSM can provide you with the necessary support and guidance to navigate through this challenging situation. Contact us today to learn more about defending against Director Penalty Notices and safeguarding your personal assets.