For company directors there is often a no more serious and life changing letter than a Director Penalty Notices (DPN) from the ATO. If everything has been lodged correctly, you have 21 Days from the date of the letter to achieve remission of the personal liability.
Understanding Director Penalty Notices (DPNs) is critical to avoiding becoming personally liable for unpaid company taxes. Knowing how DPNs work and how to respond can help directors protect themselves and their businesses.
What Is a Director Penalty Notice (DPN)?
The Australian Taxation Office (ATO) can issue a DPN when a company fails to meet its tax obligations, making directors personally liable for unpaid Pay As You Go (PAYG) withholding, Superannuation Guarantee Charge (SGC), and Goods and Services Tax (GST).
A Director Penalty Notice is a formal notice from the ATO that holds directors personally responsible for a company’s unpaid tax liabilities. There are two types of DPNs:
Non-Lockdown DPN – If tax obligations are reported on time but remain unpaid, directors have the option to either pay the debt, place the company into administration, appoint a liquidator, or commence an SBR, to have the personal liability remitted.
Lockdown DPN – If tax obligations are not reported within the required timeframe, personal liability is automatically locked in, meaning directors cannot avoid responsibility, even if the company is later placed into administration or liquidation.
Once the DPN has been issued, the Director is made personally liable for the Company tax debts. In the case of a non-lockdown DPN, this personally liability can be remitted if they take one of the steps mentioned above.
How to Avoid a Personal Liability under a DPN
Stay Up to Date with Tax Lodgements
Ensure all Business Activity Statements (BAS), PAYG, and Superannuation Guarantee Charge (SGC) lodgements are submitted on time, even if the company cannot pay the amounts due. Timely reporting prevents debts from becoming lockdown DPNs.
In the case of a BAS, the lodgement must be made within 3 months of the due date.
For Superannuation, the SGC form must be lodged by the due date of the Super payment. This is SGC form is often missed and its deadline is the same as the date the Superannuation payment is due.
Where a company is reporting PAYG via single touch payroll, this is considered to be lodged with the ATO and avoids a lockdown DPN.
Compliance is key - Always lodge on time. Even if you can't pay the debt, lodgement is key.
Monitor and Address Tax Debts Early
If your company is struggling to pay tax liabilities, engage with the ATO early to negotiate payment plans. Proactive communication can prevent escalation and potential issuance of a DPN.
When the debt starts to become a problem seek advice. Early intervention avoids the situation snowballing.
Consider Small Business Restructuring (SBR) or Voluntary Administration
If tax debts become unmanageable, exploring options like Small Business Restructuring (SBR) or Voluntary Administration can help restructure debts before a DPN is issued.
Monitor your personal ATO portal
DPN's are issued to the Director personally. Not the Company or accountants. If the Company has an accrued ATO debt, monitor personal ATO portals for the Directors at least twice a week.
The DPN will show up on the Directors personal ATO portal the moment it is issued. Sometimes, this can be caught prior to the letters even being generated.
By monitoring the Directors personal portal it will mean the DPN is caught early and with the full 21 days available if the DPN is a Non-Lockdown (because you've taken heed to point 1).
Since a DPN is mailed to the Directors home address, it can often be 7 to 14 days before it is received in the post. By the time Director reaches out to their accountant or Resolv it's not uncommon for us to be faced with 4 or 5 days to take action.
Update the Directors home address on the ASIC record
A DPN is issued by post to the Directors home address per the current ASIC record.
Ensure the ASIC record reflects the Directors current home address.
Understand Your Personal Risk as a Former Director
Directors can be held personally liable even after resigning if tax obligations were outstanding during their tenure. Ensure tax compliance before stepping down from directorship.
If there is significant tax debt at the date of resignation, then a indemnity from the Company or remaining directors may not be enough. If DPN's are issued down the road, it is likely the Company is struggling financially, that Indemnity might be worth the paper it is written on at that stage. The ATO however, won't care as you were a Director at the time.
With a situation like this, there may need to be a serious conversation held about the plan for paying the ATO debt, or consideration made to a SBR or Voluntary Administration.
Act Immediately if a DPN is received.
If you receive a DPN, immediate action is crucial. Consulting an insolvency expert can help you understand your options and minimize personal exposure. The 21 day clock starts on the date the DPN is issued by the ATO, often several days before it is received in the post. Don't delay.
What to Do If You Receive a DPN
If you receive a DPN, time is critical. Depending on the type of notice, you need to take action within 21 days to achieve remission of the personal liability. Ignoring the notice can lead to serious personal financial consequences, including legal action and bankruptcy.
How Resolv Can Help
At Resolv, we assist company directors in managing tax debts, responding to DPNs, and exploring restructuring solutions. If you’re concerned about personal liability, contact us for expert guidance on your next steps.
Facing a DPN? Don’t wait—get in touch with Resolv today for confidential advice.