Since the amended Directors Penalty Notice (DPN) law came into effect in June last year we have observed a consistent but not excessive flow of Director Penalty Notices initiated by the ATO. This new DPN regime has been well socialised by the ATO and we believe that the potential personal liability exposure of company directors should not be overlooked.
To recap the position:
Under the pre-existing legislation the ATO had the ability to issue a DPN upon a director for any outstanding PAYG owing by the company. The director had the option of either paying the outstanding PAYG debt in full or place the company into voluntary administration or liquidation. If the director failed to do either of these within the 21 day time period of the notice, the director was then unable to extinguish the personal liability of the PAYG debt of the company.
Under the new legislation the position in relation to the issuing of a DPN as outlined above still exists, although the debt now extends to unpaid superannuation. Additionally, a director will no longer be able to avoid personal liability if their company has a PAYG/Superannuation debt which is unreported three months after the due lodgement date.
Directors need to be aware of the following:
- There are now two types of DPN’s that the ATO can issue. The new notice is referred to as a Lock Down DPN. This Lock Down DPN creates a personal debt that can only be extinguished by payment or personal insolvency.
- Directors can be personally liable for unpaid PAYG if past BAS lodgement exceeds three months from the due date. This relates to all lodgements preceding the new legislation.
- The ATO only has the ability to create a personal liability for unpaid and unreported superannuation from the June 2012 quarter. The key to avoiding a Lock Down DPN for superannuation is lodgement of the Superannuation Guarantee Charge Statement with the ATO within three months of the due date.
- Directors should make certain that ASIC has the correct address for directors. A DPN will be issued and considered served if mailed to the address as recorded by ASIC.
- A new director is not liable for a director penalty for company debts that existed when they became a director until 30 days after they became a director.