A Director Penalty Notice (DPN) is a formal notice issued by the Australian Taxation Office (ATO) to company directors, holding them personally liable for certain unpaid tax debts of their company. The DPN is part of the ATO’s efforts to ensure that companies meet their obligations, particularly in relation to Pay As You Go Withholding (PAYGW), Goods and Services Tax (GST), and Superannuation Guarantee Charge (SGC) liabilities.
Key Aspects of a DPN:
1 – Personal Liability: A DPN makes a company director personally responsible for the company’s unpaid tax liabilities. The ATO uses this measure to recover unpaid tax debts from the director if the company fails to meet its obligations.
2 – Types of DPNs:
Non-Lockdown DPN: Directors can avoid personal liability by taking one of the following actions within 21 days from the date of the DPN:
- Paying the debt in full.
- Appointing a voluntary administrator.
- Placing the company into liquidation.
Lockdown DPN: If the company’s tax debts remain unreported and unpaid for more than three months, the directors are automatically held personally liable. In this case, directors cannot avoid personal liability by placing the company into administration or liquidation—payment is the only option.
3 – New Directors: If you become a director of a company, you may still be issued a DPN for unpaid debts incurred before your appointment, unless you resign within 30 days of being appointed.
4 – Defences: Directors may be able to defend against a DPN if they can demonstrate that:
- They took reasonable steps to ensure the company met its tax obligations.
- They were unable to act due to illness or other circumstances beyond their control.
Importance for Directors:
Receiving a DPN is serious, as it can lead to personal financial liability for the director. Directors must ensure their company complies with tax and superannuation obligations to avoid receiving a DPN. If a company is facing financial difficulties, it is crucial to seek professional advice early to avoid such outcomes.
In conclusion, a DPN underscores the importance of corporate governance and director responsibility, particularly in maintaining the company’s financial obligations.