The ATO and Director Penalty Notices – Business as usual

You may have noticed that over the last 12 months the Australian Taxation Office (“ATO”) have returned to “business as usual” in terms of enforcing overdue tax debts.

If you have unpaid tax liabilities, you could be faced with court proceedings, bankruptcy, or in the case of companies, liquidation. Directors may also be personally liable for some tax debts incurred by their company under the Director Penalty Notice (DPN) regime.

Your options if you receive a DPN

Director Penalty Notices are a mechanism employed by the ATO to hold directors personally liable for the unpaid tax debts of their companies. We explained the two different types of DPNs in our previous article here.

If a director receives a non-lockdown DPN, they can escape personal liability by doing any of the following within 21 days of the issuing of the DPN:

1.         Ensuring the company pays the outstanding tax debt in full;

2.         Placing the company into administration or liquidation; or

3.         Appointing a small business restructuring practitioner.

If a director receives a lockdown DPN, they cannot escape personal liability for the company’s debts other than by the company paying the outstanding tax debt in full.

Defences to a DPN

Schedule 1 of the Tax Administration Act 1953 (Cth) provides the following defences to directors who receive DPNs:

1.         Illness or some other good reason

A director is not liable if they successfully raise the defence that, because of illness or for some other good reason, it would have been unreasonable to expect them to take part, and they did not take part, in the management of the company when they were a director and the tax liability was being incurred.

2.         All reasonable steps

A director is not liable if they successfully raise the defence that they took all reasonable steps to:

(a)        ensure the company paid the debt; or

(b)        the directors appointed an administrator, appointed a small business restructuring practitioner or began a winding up; or

(c)        there were no reasonable steps the director could have taken to ensure that the matters in (a) and (b) above occurred.

Act now to avoid exposure

If you have outstanding company tax debt and your reporting obligations are not up to date, you may find yourself on the receiving end of a letter from the ATO or, worse still, a DPN.

Being proactive is important. If your company is struggling financially, including debts not just with the ATO but with other creditors and banks, we specialise in providing a whole picture legal approach to analysing your position, assessing risks and advising on best outcomes to not only survive but succeed and grow.