Introduction

As a director, it is crucial to ensure that your organization meets its tax obligations and to understand your personal liability for penalty notices.

During the pandemic, the Australian Taxation Office (ATO) suspended most debt collection actions, including garnishee notices and wind-up applications. While this measure was necessary to assist struggling businesses, it also had implications for payment behaviour. Many businesses deferred full or timely tax payments.

Now the ATO has resumed business-as-usual debt recovery operations, they expect all eligible businesses to fulfill their tax obligations promptly and completely. The ATO’s approach emphasizes engagement with taxpayers to resolve issues, but it also ensures a level playing field. For those who neglect their tax responsibilities, the ATO may take strong action, including issuing director penalty notices (DPNs) to company directors. The current debt level stands at approximately $50 billion.

Director penalty notices 

The director penalty regime imposes personal penalties on company directors for specific tax obligations equivalent to the company’s liability. These penalties automatically arise by operation of law, serving as a crucial mechanism to prevent unfair financial advantages and safeguard employee entitlements.

Before issuing a Director Penalty Notice (DPN), debt recovery actions would typically target the company itself. These actions might include letters, SMS messages, phone calls, and warnings about more stringent measures. However, if a company fails to pay its debt and neglects to communicate with the Australian Taxation Office (ATO) for alternative arrangements, a DPN may be issued to each current director, as well as anyone who held directorship during the period when the company defaulted.

Between July 1 and December 31, 2023, the ATO issued 13,648 DPNs to directors, involving 10,041 companies, with a total debt value of $1.88 billion. Of this amount, $305.8 million has been successfully collected.

Director liability 

As company directors, it’s crucial to ensure that tax and superannuation obligations are met promptly and completely. Before assuming directorship of an existing company, it’s advisable to verify any outstanding or unreported liabilities. You can do this by consulting a registered tax professional who has the authority to access relevant details.

Newly appointed directors may be held liable for director penalties related to periods preceding their appointment. Within 30 days of their appointment, they should take specific actions to avoid incurring prior director penalties, including:

1. Payment of Debts in Full
2. Appointment of an Administrator or Small Business Restructuring Practitioner
3. Initiating the Company’s Wind-Up Process

Even if a director resigns within the 30-day period, they remain responsible for the company’s debt. Ignoring a Director Penalty Notice (DPN) is ill-advised. Failure to respond within 21 days may prompt the ATO to pursue personal recovery proceedings against the director, including legal action.

How can Charles & Co. help you?

Our Team with more than 50 years combined experience can help businesses and individuals in a range of challenging and distressed situations. We encourage anyone experiencing difficulties paying its tax liabilities to contact us to discuss your options.