Director Penalty Notices now extended to GST

As of 18 February 2020, GST has been added to the current Director Penalty Notices (DPN) regime.

From then, Directors risk facing personal liability if their company fails satisfy its GST obligations.

How the DPN regime works

The DPN regime is not a new thing! Previously, the regime put directors at risk of personal liability only to the extent of their unpaid PAYG tax or Superannuation liabilities. This has now been extended to include GST.

Basically, this means that from 18 February 2020, if you fail to comply with the requirements below in relation to PAYG, GST & Super, you, as a director of a company or corporate trustee, can be made personally liable for the debt!

There are two types of DPN’s that the Commissioner can issue

A Non-Lockdown DPN:

These are issued when the liability is reported (lodged) but not paid within three months of the due date in respect of PAYG & GST and by the due date (28th day after the quarter) in respect to superannuation obligations.

A Non-Lockdown DPN discloses:

  1. The penalty amounts payable by the director; and,
  2. The options available to the director for the remission of the penalties.

With a Non-Lockdown DPN, a director has 21 days to remit the penalties before the Commissioner has the right to take recovery action against the director personally.

The key here is that a ‘Non-Lockdown’ DPN may be avoided by:

  • Appointing a Voluntary Administrator; or
  • Winding up the company.

A Lockdown DPN:

If the company fails to report and pay its PAYG tax and SGC liabilities to the ATO within three months of the due date in respect of PAYG & GST and by the due date in respect of superannuation entitlements, directors may have found themselves being held personally liable for these company debts and unable to avoid the liability imposed by the DPN by appointing a Voluntary Administrator or placing the company into liquidation.

Basically, in these circumstances, the director’s only option is to pay the debt.

Where a DPN has been issued and a company has made satisfactory arrangements with the ATO for the payment of the debts subject of the notice, i.e. entered into a formal payment arrangement, it is unlikely that the DCT will take steps to pursue penalties from a director whilst the terms of the arrangement are being satisfied. However, if there is a default in this agreement, the director may be unable to avoid the personal liability.

What’s our take?

Obviously, the aim here should be to avoid being issued a DPN altogether.

However, sometimes in life and business things happen and you may not be able to meet your tax liabilities.

The most important thing to do if you find yourself in this situation is to lodge on time.

Even if you can’t pay, engage with us, engage with the tax office, enter payment plans and simply by lodging within the specified time will limit your personal exposure.

All material contained in this article is written by way of general comment.

No material should be accepted as authoritative advice and any reader wishing to act upon the material should first contact our office for properly considered professional advice which will consider your own specific conditions.

No responsibility is accepted for any action taken without advice by readers of the material contained herein. Liability limited by a Scheme approved under Professional Standards Legislation.