Federal Taxes

A director penalty notice (DPN) is a notice of assessment issued to a company director for a penalty equal to the amount of certain unpaid amounts owed by the company, particularly superannuation guarantee charge (SGC) and pay-as-you-go-withholding (PAYGW). The practical effect of a DPN is to pierce the corporate veil and make a company director personally liable for a tax debt owed by their company.

There are two types of DPNs:

• non-lockdown DPNs — issued to company directors that have lodged the company’s business activity statement (BAS) or instalment activity statement (IAS) — ie reported the company’s tax obligations — but the PAYGW and / or SGC debt remains unpaid; and
• lockdown DPNs — issued to company directors where the company has failed to lodge its BAS or IAS — ie not reported the company’s tax obligations — within three months of the relevant due date for lodgement.

The relevance of the type of DPN relates to remission of the penalty.

For a non-lockdown DPN, directors have 21 days in which to:

• pay the tax liability (actual or estimated);
• appoint (not just take steps to appoint) an administrator under the Corporations Act 2001 (Cth); or
• appoint (not just apply or take steps to appoint) a liquidator under the Corporations Act,

before they become personally liable for the whole penalty amount.

For a lockdown DPN, directors have 21 days in which to pay the tax liability (actual or estimated). Appointing an administrator or liquidator will not save the directors from personal liability.

The DPN regime will apply to a person who was a director at the time the company was under a tax obligation and the liability for the obligation remains unpaid. The DPN regime will also apply to a person even if that person stopped being a director before the end of the due day.

The DPN regime applies to a ‘new director’, who is a person that became a director of the company when that company was under a tax obligation and the liability for that obligation remains unpaid 30 days later.

New directors have up to three months from their appointment to resign to avoid being liable under a lockdown DPN.

A director will not be liable to a penalty if:

• because of illness or some other good reason, it would have been unreasonable to expect the director to take part, and the director did not take part, in the management of the company;
• the director took all reasonable steps to ensure that one of the following happened:
  • the company paid the outstanding amount;
  • an administrator was appointed to the company; or
  • a liquidator was appointed to the company;
• there were no reasonable steps the director could have taken to ensure any of the things in listed immediately above could have happened; or
• in the case of an unpaid SGC liability, the company treated the relevant superannuation legislation as applying in a way that could be reasonably argued was in accordance with the law and took reasonable care in applying that legislation.

In determining what are reasonable steps, the Commissioner has regard to:

• when, and for how long, the director was a director and took part in the management of the company; and
• all other relevant circumstances.

If you disagree with a decision or assessment the Commissioner (via the ATO) has made about your tax, you have the right to have the decision reviewed. You can also request an informal internal review by the ATO.

You can formally object to the decision or assessment under the process set out in relevant tax-administration legislation. Then, if you do not agree with the objection decision, you can appeal that decision to the Administrative Appeals Tribunal or Federal Court of Australia.

Yes, all tax debts assessed by the Commissioner (via the ATO) are payable, even disputed debts.

Where tax is paid and the dispute is resolved in favour of the taxpayer (in whole or in part), the Commissioner will pay interest on overpayments in respect of certain types of tax which have been overpaid.

At the objection stage, you are expected to properly cooperate with the ATO objections officer by promptly responding to queries and providing additional material as sought.

If the Commissioner perceives you have lodged a frivolous objection, or are deliberately delaying the objection process, or there is some other risk to the revenue, then debt recovery action against you will be commenced.

At review or appeal stage (ie reviewing or appealing an objection decision), the Commissioner will seek to enforce collection of any unpaid disputed debt unless a formal deferral of recovery action has been granted to you. The Commissioner may agree to deferral of recovery action where:

•  you have entered into a 50 / 50 payment arrangement and the deferred tax amount is not at risk;
• the Commissioner considers there is a genuine dispute about the debt; or
• in the dispute, the Commissioner’s argument is contrary to previous ATO advice or case law.

The Commissioner (via the ATO) may initiate recovery action for collection of unpaid disputed debts at any time, even before determining an objection, based on an analysis of the risk associated with the case. This risk analysis continues during the various stages of the dispute resolution process while a debt remains unpaid.

Some of the ways in which the Commissioner can recover an unpaid tax debt include:

• using refunds or credits you are owed in respect of other Federal tax regimes;
• using an external debt collection agency to deal with you;
• issuing a garnishee notice;
• issuing a director penalty notice;
• issuing a creditors statutory demand under the Corporations Act 2001 (Cth);
• issuing a court claim;
• issuing a bankruptcy notice and seeking a sequestration order by a court against an individual under the Bankruptcy Act 1966 (Cth);
• seeking winding up orders by a court against a company.