A director penalty notice (DPN) is an enforcement action commenced by the Australia Taxation Office against directors of companies. It carries serious consequences so if you are served with one, you need to attend to it immediately.
Companies are obliged to meet their Pay As You Go (PAYG) withholding and Superannuation Guarantee Charge (SGC) amounts (essentially employee entitlements) and as a director of a company you have a legal responsibility to ensure the company meets those obligations. If the company fails to do so, a director becomes personally liable for the unpaid amount.
If the Commissioner of Taxation serves you with a director penalty notice, you have 21 days to respond (see below). If you do not respond (or pay the outstanding amount) then the Commissioner can commence Court proceedings against you for the outstanding unpaid amount.
What are my options?
If a director is served with a director penalty notice, there are only limited options available to discharge the penalty.
For companies that have not reported the unpaid debts within three months of the due date, the only option to discharge the penalty is to pay the debt.
If, however, the company has reported the unpaid amounts within three months of the due date, there are more options:
- Payment of the debt in full;
- Having a liquidator appointed to wind up the company; or
- Appoint an administrator to the company.
These actions need to be undertaken within 21 days of the notice being issued. If they are not, the director is liable until the debt is paid in full. This can mean Court proceedings commenced by the ATO against you for the debt in full.
The clock starts ticking on the director penalty notice from when it is posted, not when you receive it. That is, you have 21 days to act from the date it was posted. It is important that your current address is always registered with ASIC. If you received the director penalty notice late due to changing addresses, this is unlikely to be considered a defence to the director penalty notice.
I’m no longer a director of the company, how can I still be liable?
Even if you have resigned as director, you will remain liable for all of the Company’s unpaid PAYG withholding and SGC amounts which were due up to the date of your resignation, as well as any liabilities after your resignation but where the first withholding event occurred before your resignation.
Before becoming a director of an existing company, you are best to make inquiries to find out if there are any unpaid and unreported PAYG and SGC amounts. If there are, you should take steps to ensure the Company either pays the outstanding amount, goes into voluntary administration or appoints a liquidator within 30 days of your appointment.
If you do not, then you will become liable for all of the company’s unpaid PAYG withholding liabilities and all unpaid SGC liabilities that were due after 29 June 2012.
What if I dispute the notice?
There are limited defences available to directors who have received a director penalty notice. The main ones being:
- Due to illness, or for some other good reason, you did not take part in the management of the company (and it would have been unreasonable to expect you to do so); or
- You took all reasonable steps to ensure that either the company paid the amount outstanding, you attempted to have an administrator appointed to the company or the directors began winding up the company.
These defences can also be raised if Court proceedings are commenced against you for a director penalty notice.
A lawyer can work with you to devise strategies to try to resolve matters with the Australian Taxation Office, to help stave off enforcement action or represent you if proceedings have been commenced against you by the Australian Taxation Office. This needs to happen quickly, given the strict deadlines applied by the Australian Taxation Office.
For more information regarding director penalty notices, or director’s duties in general, get in touch with LegalVision on 1300 544 755. Our commercial lawyers will happily provide you with a fixed-fee quote.