Beware the ATO DPN! (Director Penalty Notice)

In short, a DPN relates to a power that the ATO holds to effectively make a Director personally liable for certain outstanding debts of a company, if the company fails to meet its obligations, by levying a penalty equal to the amount outstanding. Obviously, this is a hugely powerful tool, and really has the ability to change a Directors world – making you personally responsible for the company debt, and potentially facing personal bankruptcy proceedings by the ATO. If you personally hold a family home or other valuable assets, this can of course be life changing.

In the current climate this is particularly relevant, as the ATO currently has in excess of $60 billion outstanding to it by businesses, and after a year of sitting on their hands and not aggressively chasing and collecting outstanding debts due to the COVID crisis, it seems that the time has now arrived for the softly softly approach to come to an end. Clearly the Government has a huge interest in getting this overdue money into the coffers to help it guide the economy through the continuing challenges of this crisis...
 
So what does this mean for you, the humble company Director…?

To start, it is worth reviewing the extent of the ATO’s DPN powers.

A DPN can be utilised by the ATO where a company has outstanding:

• PAYG withholding
• Superannuation
• GST
• and a few other minor taxes like Luxury Car Tax (LCT) and Wine Equalisation Tax (WET)

Point to note, yes, GST is now included within these powers! This extension of the powers to GST happened in early 2020 as part of the Federal Government's anti-phoenixing provisions. To date, it seems this new power has not been used much, but we foresee pursuing outstanding GST by issuing DPNs being a significant recovery tool to be wielded by the ATO in the near future.

A DPN can take 1 of 2 forms: a non-lockdown DPN and a lockdown DPN.

A non-lockdown DPN is the original power the ATO was given, which is used where a debt has been reported (usually by lodging a BAS) and remains unpaid by a company, and after the ATO issues a written DPN notice it provides the recipient director a number of options to have the penalty remitted, and avoid personal liability: however you must move swiftly to take advantage – generally only 21 days. The options being generally, to pay the debt in full, come to a satisfactory plan with the ATO, or to appoint a Liquidator or Administrator to the company, within the available 21 day period. [UPDATE: May 2022 - in a change enacted by the ATO in early 2022, directors are no longer able to avoid personal liability for a penalty pursuant to a DPN by entering into a payment arrangement with the ATO.]

It seems a bit of a loophole was spotted in these original powers and some recalcitrant sorts realised that if they simply didn’t report, then the ATO could not catch them. So, in comes the “lockdown DPN”. These apply to directors of companies that have failed to meet their reporting obligations within 3 months of the due date. As the name attempts to suggest, a lockdown DPN imposes an immediate liability upon the recipient director for any debt that is, or would be due, in respect of that non-lodged / reported liability. A written notice is not required, and the director's personal liability exists as soon as the three month time period passes. The ATO also has power to estimate the amount likely to be owing. The lockdown DPN cannot be avoided, other than by payment of the debt in full.

Just as an aside in relation to the above, failure to lodge a monthly or quarterly BAS is the obvious example most directors would be aware of, which might result in a lockdown DPN liability for PAYG and GST, however a lesser known obligation relates to superannuation reporting. Superannuation is generally due to be paid quarterly. If you miss that deadline there is an often missed obligation to lodge a superannuation guarantee shortfall statement. Failure to lodge this shortfall statement will similarly result in a lockdown DPN and personal liability in respect of the relevant amount of superannuation (and interest and penalties) that would arise for that lodgement period. The introduction of single touch payroll (STP) is also used as a mechanism for the ATO to stay on top of, in real time, every business’s payroll and staff entitlements reporting and payment obligations, so they will probably know before you do, when you have missed a payment or reporting obligation…

So what is a director to do…?

It is quite simple - if you receive a written DPN from the ATO or if you know you have failed to report your relevant obligations, you immediately have an issue and it is essential you seek expert advice. Just because you don’t immediately hear from the ATO does not mean you have avoided this liability.

 
You need to get specialist help and advice immediately.

We always offer an initial no cost, obligation free consultation, in person or by phone, to any person wishing to discuss their particular circumstances. We are not a pushy sausage factory “counsellor” that you see advertising on TV or radio and we are not trying to sell you into a long-term budgeting plan, and wont charge you to simply discuss your circumstances. We have a genuine interest in helping people deal with their financial problems in the best way possible for their particular circumstances. This is what we do every day, and we will give you honest, expert guidance that you can only get from a regulated licensed insolvency expert, and we pride ourselves on delivering the key information in a way that you can easily understand.

We have significant experience in dealing with personal and corporate financial distress and are available to assist immediately. Call us now or contact us through the “Contact” page on our website.

Bill Cotter - Director (m) 0413 885 888