Director penalty regime – march 2020
Mar 17 2021
Update On Director Penalty Regine
As of 18 February 2020, the GST has been added to the current Director Penalty Notices (DPN) regime. Consequently, Directors are required to ensure that their company satisfies its GST obligations or risk facing personal liability for the debt.
The Director Penalty Regime previously gave the Deputy Commissioner of Taxation (“DCT”) the power to recover penalties from a director personally equivalent to its unpaid PAYG tax or Superannuation liabilities. Where the liability has been reported and not paid within three months from the due date in respect of PAYG tax and 28 days from the due date in respect of superannuation obligations, should a DPN be issued it would be a Non-Lockdown DPN which discloses:
- The penalty amount payable by the director; and,
- The options available to the director for the remission of the penalties.
With a Non-Lockdown DPN, a director has twenty-one (21) days to remit the penalties before the DCT has the right to take recovery action against the director personally. A ‘NonLockdown” DPN may be avoided by:
- Appointing a Voluntary Administrator;
- or Winding up the company.
However, if the company failed to report and pay its PAYG tax and SGC liabilities to the ATO within three months of the due date in respect of PAYG tax and 28 days in respect of superannuation entitlements, directors may have found themselves being held personally liable for these company debts and unable to avoid the liability imposed by the DPN by appointing a Voluntary Administrator or placing the company into liquidation.
In these circumstances, a Lockdown DPN would be issued giving only one alternative to the director being to pay the debt. The change to the DPN regime in respect of GST mirrors the position with PAYG tax in that Directors will only receive a Lockdown DPN if they have not reported and paid the company’s GST liability within three months of the due date for payment.
Where a DPN has been issued and a company has made satisfactory arrangements with the DCT for the payment of the debts subject of the notice, i.e entered into a formal payment arrangement, it is unlikely that the DCT will take steps to pursue penalties from a director whilst the terms of the arrangement are being satisfied. However, if there is a default in this agreement, the director may be unable to avoid the personal liability.