New Director Penalty Notice Laws – the ATO is using its thumping new, retrospective, powers
You’ve probably heard about the changes to the Director Penalty Notice (“DPN”) regime which became law in June 2012. However, it has not been well reported that the ATO received significant powers to enforce director personal liability for company PAYG debts and those powers were retrospective. The laws are complicated and significant and the ATO has wasted no time using its extraordinary new powers!
Let me explain the situation. The old laws still apply and so, yes, a director may still receive a DPN giving them 21 days to act or be personally liable for the amount shown on the DPN. So, the new laws are on top of the old laws and they:
- Expand the DPN regime from just PAYG deductions to include Superannuation Guarantee amounts (“SG”);
- Make directors automatically personally liable if PAYG or SG amounts remain unpaid and unreported three months after the due date for lodging a return and a director cannot cause their director penalties to be remitted by placing their company into administration or liquidation;
- Have effectively backdated the director personal liability for existing PAYG liabilities if the amounts are already unpaid and unreported for three months after the due date of the return.
We have already seen a number of examples of the ATO using the new powers to pursue Directors for PAYG that accrued dating back to 2009. Yes, that is retrospective personal liability and it is being enforced. So, here is some general advice:
- If a DPN is received with a 21 day Notice period (old law), then react and do so, yes, within 21 days.
- Directors should get their company Tax Returns up to date and lodge them. If a company can’t pay the PAYG or Super liability, it should lodge the returns anyway or a director risks incurring automatic personal liability.
- If PAYG debts and Returns are already 3 months late – either pay the PAYG debt or get the company into liquidation. If reporting is out of date, a liquidation won’t guarantee the director won’t hear from the tax office again, but it is their best chance.
The upside for Public Accountants is that they can now explain to your less compliant clients that if they do not do their company tax returns on time then they will be personally liable for PAYG and Super debts.
We have prepared a downloadable Director Information Sheet which explains the new laws and how the world has changed for company directors.