Director Penalty Notices: Could you be personally liable for your business tax debt?

Learn about your options if you or your client has received a DPN.

Ulrika Lobo, host of inDebt with Ulrika Lobo, 06/12/2022

Tax debt can be immobilising, disrupt your business operations, and unleash a world of financial pain if left unmanaged. Total recoverable debt stands at a whopping $44.8 billion as of 30 June 2022. The ATO has awoken from a long slumber and is aggressively pursuing its unpaid business tax debts.

In March 2022, ATO wrote to 52,000 directors and 30,000 businesses with significant outstanding tax obligations. These letters included a mix of director penalty notices and awareness programs on how to remediate your debts. As a result, we are emerging from the extreme policy settings of the last three years and entering a new normal.

Amnesty for the 'extreme circumstances' of Covid lockdowns and economic contractions have passed - we are now in a time of strict compliance and rigidity. The activity from the ATO dials up the pressure on businesses battling to stay afloat as inputs, wages, and debt repayments all surge in cost. Suppose you or your clients are one of the 70,000 businesses the ATO has written to under its Director Penalty Notices and business tax disclosure programs. In that case, you might want to consider your options before they're gone. 

 

Why would I receive a DPN?

You will receive a director penalty notice (DPN) if you have breached your tax obligations for PAYG, Superannuation, or GST. There can be a lot to juggle for a busy director; however, you must be remitting withheld employee earnings to the ATO for PAYG tax, honouring employee superannuation guarantees, and paying GST. A DPN allows the ATO to begin recovering the company's unpaid amounts, and it has many tools in its arsenal to do so - some less friendly than others.

There are two types of director penalty notices: a 21-day "non-lockdown" DPN and a lockdown DPN. A 21-day DPN is the most common type. It gives directors exactly three weeks to 'remit' their debt by paying the full outstanding amount, appointing a voluntary administrator, or appointing an insolvency practitioner. A 21-day DPN gives directors more flexibility. For example, suppose they respond to the 21-day DPN on time. In that case, they are not personally liable for the outstanding amounts. The ATO may be willing to negotiate a payment plan if they think you can turn things around. However, if the penalty notice is not adhered to, directors will be personally liable for the business' outstanding obligations. This would create much financial pain as all your business debts become your personal responsibility as the Director; you can write avocado off the menu for the foreseeable future. 

Compared to a non-lockdown DPN, a lockdown DPN is much more constricting and has more