RSM Australia

Director Penalty Notices - An explanation of the Director Penalty Regime

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What is a director penalty notice (DPN)?

A notice issued by the ATO, which if not complied with by the due date, makes a director personally liable for the penalty amount until it is paid in full.

The director penalty regime applies to:

  • Unpaid Pay As You Go (PAYG) withholding amounts
  • Unpaid Superannuation Guarantee Charge (SGC) obligations applicable from and including 30 June 2012

In order to avoid being issued with a DPN:

  • Make immediate enquiries to ascertain if there are any unpaid and unreported PAYG withholding and SGC amounts
  • Ensure that future lodgments and payments are made on time

Be aware that:

  • Even if you are no longer a director of the company, or a newly appointed director, a director’s penalty may still apply to you

If you are unable to comply with your payment obligations:

  • Seek professional advice early
  • Continue to engage with the ATO, as they are more likely to issue a DPN to those that don’t actively seek to resolve outstanding obligations

If you do receive a DPN for amounts that were reported within three months of the due date:

  • Adopt one of the following three options available to achieve remission of the director penalties within the timeframe specified:
  • Pay the debt
  • Appoint an administrator under section 436A, 436B or 436C of the Corporations Act 2001
  • Appoint a liquidator to wind up the company

For unpaid amounts that were not reported within three months of the due date, payment of the debt within the required timeframe is the only option available to achieve remission of the director penalties.

If these actions are not taken within 22 days after the DPN is given to the director, the penalty is not remitted and the director is personally liable for the penalty amount until it is paid in full.

Director Penalty Regime Key Elements

  • The overarching objective of the director penalty regime is to ensure that directors cause the company to comply with certain taxation and superannuation obligations
  • Directors will be personally liable for unpaid PAYG withholding or SGC amounts
  • A new director is not liable to a director penalty for company debts until 30 days after they become a director
  • In addition to estimating unpaid PAYG withholding liabilities, the Commissioner can estimate unpaid superannuation guarantee charge
  • In addition to the requirement that the Commissioner serve a DPN on a director, the Commissioner may also serve a copy of a DPN on the director at his or her tax agent’s address
  • Where three months has lapsed after the due day for the company liability and the liability remains unpaid and unreported, the director penalty is not remitted as a result of placing the company into Voluntary Administration or winding it up
  • New directors are not subject to these restricted remission options until three months after they become a director of a company, rather than three months after a debt arose
  • In certain circumstances, a director will not be liable for a penalty if:
    • Because of illness or some other good reason, the director did not take part (and it would have been unreasonable to expect that the director take part) in the management of the company
    • The director took reasonable steps to ensure that the company paid the amount outstanding, an administrator was appointed to the company, or the directors began winding up the company
    • In the case on an unpaid SGC liability, the company treated the relevant legislation as applying in a way that could reasonably argued was in accordance with the law

Authors

Frank Lo Pilato
Managing Partner - Canberra
Andrew Bowcher
Partner - Wagga Wagga
Neil Cribb
Partner - Perth
David Mutton
Principal - Melbourne
Mitchell Herrett
Principal - Brisbane
Peter Marsden
Senior Consultant - Sydney