As a director, one of the most important notices you need to be wary of is a Directors Penalty Notice which is issued by the Australian Taxation Office under Section 222AOE of the Tax Act. If you get a Directors Penalty Notice you must act immediately to avoid personal liability. CALL US NOW for CONFIDENTIAL, FREE ADVICE.
The ATO has the power to collect outstanding deducted taxes by making directors liable for a ‘penalty' for the same amount as the unpaid tax. These provisions create a liability to the ATO in the name of the director.
Each director of a company becomes separately liable for the full amount of the penalty. If a Director receives a Director Penalty Notice it requires the directors to take one of four specific actions within 21 days of issue or the director will be personally liable for the debt:
- Pay the debt in full;
- Enter into an instalment arrangement to repay the debt;
- Appoint a Voluntary Administrator; or
- Appoint a Liquidator.
So what should you do? Act immediately!
If the company is solvent, it should pay the tax. Directors of companies that cannot pay the tax usually decided to appoint a liquidator by way of Creditors Voluntary Liquidation, or a Voluntary Administrator. If you are close to the 21 days expiring, you'll be pleased to know that we are able to organise the appointment of a liquidator within a couple of hours. But before deciding what to do we suggest you can do a simple solvency test: Is my company insolvent? or Ask IRA! IRA is the Interactive Restructuring Adviser and by answering four questions IRA will give you a quick assessment of your company’s position and give you the solutions that match your situation.
If Liquidation is the right solution for your company then you'll be pleased to know it is a simple process. We will usually recommend a Creditors Voluntary Liquidation, or “CVL”, which is quick, simple and inexpensive.
Other ATO Legal Actions?
There are several actions the ATO can take against a company struggling to pay their tax debt.
Garnishee Notice
A Garnishee Notice entitles the Australian Tax Office to collect an outstanding tax debt by directly removing monies from an insolvent company's bank account or directly collect monies from a company's creditors.
See our Tax Debt Problems page for more information
Departure Prohibition Order
The ATO has the power to stop a debtor from leaving the country (regardless of whether they intend to return or not) until such time as a debt is paid in full or suitable arrangements for payment of the debt are made.
This order would apply to a director who has been made personally liable for their company's tax debt by way of a Directors Penalty Notice.
