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A Timely Refresher on Director Penalty Notices (DPNs)

Amongst all the communication a business has with the Australian Taxation Office (ATO), it is perhaps understandable that some things can be overlooked. While every effort should be made to take on board all information from the ATO, a Director Penalty Notice (DPN) is one of the most important things not to miss. This will be even more crucial in the next financial year, as the ATO looks to crack down on Pay As You Go Withholding (PAYG) and Superannuation Guarantee Charge (SGC) debts within businesses via the introduction of Single Touch Payroll (STPR) legislation which is effective 1 July 2018.

What is a DPN?

A DPN is a notice from the Australian Taxation Office that outlines to a company’s director that they are going to be held personally liable for PAYG withholding tax and SGC liabilities because the company has failed to meet its lodgement and/or payment obligations. The inclusion of SGC obligations into the DPN regime occurred in 2012, and sought to further incentivise directors to ensure all company tax debts are settled promptly.

Who is liable?

Past, present and even future directors (depending on the circumstances) are potentially liable, meaning valuable personal assets may be at risk.

DPN Types

There are two types of DPN, Lockdown and Non-lockdown.

Non-lockdown DPNs apply when companies have lodged the necessary statements, but the PAYG withholding and SGC debts remain unpaid.

A Director then has 21 days to either pay off the debt via the company, organise a payment arrangement with the ATO, or put the company into either liquidation or voluntary administration.

Lockdown DPNs are issued when a company has failed to lodge its Activity Statements and/or a SGC Statement within three months of their due date. The ATO is able to rely on estimates when issuing this type of DPN.

In this instance, directors become automatically liable for the unpaid PAYG and SGC debts to the ATO. There is no opportunity for remittance when issued a Lockdown DPN.

How to deal with a DPN

The first (and most obvious) step to avoid a DPN is to ensure all Activity Statements and SGC Statements are lodged correctly, on time and in full. This will mean the ATO has no reason to issue any infringements with regard to PAYG and SGC debts for the financial year. The main source of information for the ATO is lodged statements, so getting them right reduces any chance of being issued notices such as these. If you are issued with one, it is crucial to get on top of it as soon as possible, and organise a way to either pay the debts to the ATO or put the company into liquidation or administration.

The ATO will not be able to undertake any further action to recoup the money until the 21-day notice period is served. However, a director’s liability arises at the date the obligation to lodge or pay occurred.

Need help with your PAYG or SGC in your business? Not sure if you are ready for Single Touch Payroll? The experts at McKinley Plowman are here for support: https://www.mckinleyplowman.com.au/

References:

https://worrells.net.au/director-penalty-notices/#1446433017256-f75e2df1-e79c0129-d26d

kwallman@hlbinsol.com.au

written by:

Dominic Rollerson

Dominic has over 25 years of experience in working alongside business owners in both Australia and the United Kingdom including a number of years working in commerce. With a high level of expertise in business structuring, business acquisitions/disposals and business planning, coupled with a broad range of experience in dealing with businesses from start-ups through to listed companies, on both an Australian and international basis, Dominic has amassed a wealth of experience in understanding what makes a great business and focusses on partnering with businesses in an action focussed, yet light hearted manner.
Dominic is a member of the Chartered Institute of Accountants of Australia, a Chartered Tax Advisor, a Fellow of the Association of Chartered Certified Accountants, a Fellow of the Chartered Institute of Secretaries and a Fellow of the Governance Institute of Australia.