Following a relatively quiet period during the COVID-19 pandemic, the Australian Taxation Office (ATO) has resumed its debt collection activities. This includes issuing warnings to thousands of company directors to actively manage their business debt, or face ATO action.
The ATO’s activities include disclosing debts to credit bureaus, and (where relevant) issuing company directors with a Director Penalty Notice (DPN).
Under the director penalty regime, company directors may become personally liable for a penalty equal to the value of certain company tax obligations, including superannuation, PAYG withholding and GST, if they are not paid when due.
Before recovering any director penalties, the ATO must first issue a DPN. There are two types of DPNs as shown below.
|Lodgements||Debt||Options for Directors set out in the notice|
|Business Activity Statements are lodged within three months of the due date.
Superannuation Guarantee Charges (SGC) are lodged withing one month and 28 days after the end of the quarter.
|Debt unpaid||Directors may undertake one of the following actions within 21 days of receiving the notice.
1. Pay the company’s debt to the ATO in full.
2. Place the company into liquidation.
3. Place the company into administration.
4. Appoint a Small Business Restructuring Practitioner (SBRP)
|Business Activity Statements and SGC have not been lodged within the relevant timeframes.||Debt unpaid||Pay the penalty in full within 21 days of receiving the notice or rely on a statutory defence.|
It’s important to note that under a Non-Lockdown DPN, where previously a company could enter a payment plan to avoid a director penalty, this is no longer the case. As such, directors may be held personally liable for any outstanding liabilities of the company regardless of whether the company has negotiated a payment plan or not. In this case the only options available to a director to avoid personal liability for the company’s tax debts are to appoint an administrator, a liquidator or a Small Business Restructuring Practitioner to the company. If you need advice or assistance in this regard, please contact your William Buck advisor – our Restructuring & Insolvency team can provide guidance and assist you with this process.
Your next steps
It is important to engage with the ATO as early as possible in respect to any debt obligations to avoid disclosure and the issuance of DPNs.
Should you receive a notice that the ATO will disclose your business debt, or a DPN, please contact your William Buck advisor as soon as possible. We can also assist in negotiating a payment plan with the ATO on your behalf.