Consistent with indications from the ATO that it intended to accelerate its debt collection activities post-COVID, the ATO is now ramping up the issuance of Director Penalty Notices (DPNs).
Whilst the ATO adopted a lenient approach to collecting unpaid tax debt at the height of the pandemic, it has demonstrated a renewed commitment to debt recovery as the nation's economy bounces back.
Key takeaways
- In a mission to recover unpaid taxes and confront the backlog of debt accumulated over the past two years, the ATO is currently issuing 30-40 DPN's each day. This figure is expected to grow in the coming months.
- In early April 2022, the ATO dispatched over 52,000 letters to directors warning of impending DPNs. The letters notified company directors of their obligations, and alerted them to the likely impacts of failing to meet those obligations.
- Directors issued with a non-lockdown DPN may avoid personal liability by appointing a small business restructuring practitioner (SBRP).
Overview of the DPN regime
The ATO may issue a a DPN where a company has outstanding tax liabilities including:
- Goods and services tax (GST);
- Super guarantee charge (SGC); and
- Pay as you go (PAYG) liabilities.
Where a company fails to comply with its tax obligations, directors are at risk of enforcement proceedings being brought against them, which can ultimately result in serious financial consequences such as bankruptcy. In order to bring such enforcement proceedings the Commissioner must first issue a DPN and allow the director 21 days to respond to the DPN.
Introduction of awareness campaign
In a bid to encourage taxpayers to make payment or enter into payment plans, the ATO issued more than 52,000 awareness letters for approximately 45,000 companies, alerting directors that they can expect to receive a DPN and face personal liability should they fail to properly manage their company debt.
The letters were sent directly to the residential address of the appointed director, and targeted at companies with significant outstanding tax obligations.
The ATO has also distributed more than 300 notices of intent to disclose debt to credit reporting agencies, a relatively novel mechanism adopted by the ATO in recovering unpaid debt. This measure permits the agency to report significant tax debts (in excess of $100,000) in circumstances of failure to respond to the ATO.
These unprecedented measures, forming part of a broader awareness campaign by the ATO, provide pathways to engagement over enforcement.
Changes to non-lockdown DPNs
Non-lockdown DPN’s are issued when activity and SGC guarantee statements are lodged within three months of the due date, but the debts are unpaid
Prior to the COVID-19 pandemic, a director issued with a non-lockdown DPN was required to either pay the debt, or place the company in voluntary administration or liquidation within 21 days.
Non-lockdown DPNs issued since March 2022 outline four options available to directors:
- The company satisfies its obligation to pay the unpaid debt to the ATO;
- The company is placed into administration;
- The company is placed into liquidation; or
- A SRBP is appointed to the company.
Lockdown DPNs
Lockdown DPNs are issued to company directors when lodgement of business activity statements or superannuation guarantee statements has failed to occur within three months of their lodgement due date. A director becomes personally liable for the penalty immediately after the DPN is served upon them.
If a company director receives a lockdown DPN, the penalty will not be remitted until the company pays the underlying debt or the penalty in full.
Liability of new and resigned directors
New directors can be held liable for director penalties in respect of a company’s unpaid obligations if those obligations remain unsatisfied 30 days after the director started. For the purposes of the regime, new directors are individuals appointed as directors following the due date in respect of the unpaid obligation.
Resignation as a company director following the initial date fails to prevent the director being held liable.
Steps for company directors
As highlighted above, time is of the essence once a company director receives a DPN. Accordingly, it is vital that company directors seek immediate advice to familiarise themselves with the options available and achieve the greatest chance of a positive outcome.
