In recent times, the Australian Taxation Office (ATO) has been issuing director penalty notices (DPNs) at an alarming average rate of 60 per day, as reported by an ATO spokesperson. If you’re a director of a company or considering such a role, it’s essential to grasp what DPNs entail and how they can affect your responsibilities and liabilities. Below, we’ll break down what DPNs are and the steps you should take to navigate this complex landscape.

What is a Director Penalty Notice (DPN)?

First and foremost, it’s crucial to understand that a director penalty notice (DPN) doesn’t make you liable for outstanding company debt. Directors are inherently liable for company debts by operation of law. Instead, a DPN serves as a formal notice from the ATO, signaling the commencement of a countdown to remit the outstanding liabilities or face the consequences.

Key Actions for Directors Facing DPNs

Here’s a step-by-step guide on what you must do if you receive a DPN:

1. Complete Your Business Lodgments Regardless of your ability to pay the associated liabilities such as PAYG, GST, and superannuation, ensure that you complete your business lodgments.

2. Verify Your Business Address Make sure your business address is correct on the Australian Securities and Investments Commission’s (ASIC) register.

3. Contact the ATO If you find yourself unable to pay the DPN amount, it’s crucial to reach out to the ATO to discuss your options.

Lockdown DPN vs. Non-Lockdown DPN

Understanding the distinction between these two types of DPNs is essential:

1. Lockdown DPN This type applies when a company fails to lodge its business activity statements (BAS) and instalment activity statements (IAS) within three months of the due lodgment date or superannuation guarantee charge (SGC) statements within one month and 28 days after the end of the relevant quarter. In these cases, the director’s exposure to the penalty is automatic and permanent. The only way to remit (cancel) the penalty is to pay the debt in full.

2. Non-Lockdown DPN Directors facing a non-lockdown DPN have several options that may be exercised within 21 days to remit the applicable tax (penalty). These options include paying the debt in full, organizing an approved payment plan with the ATO (typically 50% upfront and the balance over 12 instalments), appointing a voluntary administrator, appointing a small business restructuring practitioner, or appointing a liquidator. Failing to take one of these actions within 21 days of the DPN being issued will result in the director penalty permanently locking down, allowing the ATO to commence debt recovery proceedings.

Navigating Director Penalty Notices:

Director penalty notices are a serious matter that all directors should be aware of. By taking proactive steps and seeking professional guidance, you can navigate these challenges and safeguard your business’s financial stability. Remember, early action and compliance are key to avoiding the potential consequences of DPNs.

Director penalty notices can have a significant impact on your role as a company director. By understanding the process and adhering to the necessary steps, you can protect both your personal and business finances. Don’t hesitate to seek our advice when facing DPNs to ensure you make informed decisions that benefit your financial future and business wellbeing.