The Australian Tax Office (ATO) is using Director Penalty Notices (DPN) to make directors personally liable for liabilities to ATO. ATO is currently owed about $35 billion from small businesses. Use of the DPN regime is one of the tools being used by ATO to recover money owing to ATO by small businesses.

What is a Director Penalty Notice (DPN)?

A DPN from the ATO is a serious legal measure that can make company directors personally liable for unpaid tax debts. DPNs can be issued for three types of tax obligations:

• Pay As You Go (PAYG) withholding
• Superannuation Guarantee Charge (SGC) liabilities
• Goods and Services Tax (GST)

A DPN is an urgent call for directors to address company tax debts or risk personal financial responsibility. With increasing enforcement by the ATO, understanding how to respond to a DPN is essential for directors.

Types of DPNs and What They Mean for Directors

There are two types of DPNs:

1. Lockdown DPN: Issued if the company has failed to lodge returns for PAYG, BAS, GST, or SGC on time and hasn’t paid its tax obligations. This notice holds directors immediately liable, and the only way to avoid personal liability is by paying the debt in full.
2. Non-lockdown DPN: This is issued if the company has lodged the necessary documents but not paid the taxes. Directors have 21 days to address the debt through one of these options: pay it, appoint a voluntary administrator, engage a small business restructuring practitioner (SBRP), or appoint a liquidator.

Important: A DPN should not be confused with a garnishee notice, which allows the ATO to seize funds directly from a company’s bank or wages to settle tax debts.

Steps to Take if You Receive a DPN

Speak to a registered liquidator. Alternatively, your accountant needs to speak to a registered liquidator. They can help you understand the specifics of the DPN and guide you through the necessary steps to protect yourself from personal liability.

Consider appointing an Administrator or Small Business Restructurer. They can help create a pathway for restructuring or winding up the company.

Consequences

Failing to act on a DPN can have serious repercussions, including personal liability for the company’s tax debts. Directors are legally responsible for ensuring their company’s tax obligations are up-to-date. If the company has outstanding debts, and a director fails to take action within the timeframe, they may face severe financial and legal consequences.

DPNs can have significant impacts on small business owners. From 1 July 2023 to 29 February 2024, ATO has issued 13,454 DPNs. These statistics reflect an already increased number of DPNs being issued post-Covid.

Reach out

Reach out to David Levi, Registered Liquidator at Levi Consulting. Contact us directly via DM or at 0418 602 466 for a confidential discussion. Whether you’re a director, accountant, or lawyer, our team is here to support you in safeguarding your interests.