Director Penalty Notice: All you need to know

What Are the Two Types of DPNs?

21-Day DPN:

A 21-Day DPN gives directors 21 days from the date of the notice to act and avoid personal liability. During this period, you can pay the debt in full, appoint an administrator, or begin voluntary liquidation. Failure to take action within this timeframe can result in personal liability for the company’s debts.

Lockdown DPN:

A Lockdown DPN applies when the company’s tax debts have been unreported or unpaid for a significant period. Unlike the 21-Day DPN, once a Lockdown DPN is issued, directors are automatically liable, and the only way to discharge the liability is by paying the debt in full.

Can You Receive Both a 21-Day DPN and a Lockdown DPN Together?
Yes, directors can potentially receive both types of DPNs if the ATO deems it necessary. This is especially true if there are multiple types of unpaid tax obligations with varying degrees of reporting compliance.

How to Avoid Personal Liability Under a Director Penalty Notice

Avoiding personal liability under a DPN requires prompt action. For a 21-Day DPN, you must pay the debt, appoint an administrator, or liquidate the company within 21 days. For Lockdown DPNs, paying the debt in full is the only way to avoid liability. Seeking expert advice as soon as a DPN is issued is critical to understanding your options and taking the appropriate steps.

What Company Taxes Can I Be Liable for Under a DPN?

The ATO can issue a DPN for the following unpaid company taxes:

• Pay As You Go (PAYG) Withholding
• Superannuation Guarantee Charge (SGC)
• Goods and Services Tax (GST)

These tax liabilities can trigger the issuance of a DPN, making it crucial to maintain timely reporting and payment of these obligations.

Who Can Be Issued with a DPN?

Any current or former director of a company can be issued with a DPN. This includes directors who have recently resigned, under certain conditions, and even those who hold the title of a new director. Here are some key points:

• Will a Director Penalty Notice Apply to Me if I Am a New Director?
  Yes. New directors can be issued with a DPN if the company’s debts were unpaid before their appointment.
• What Are My Liabilities if I’m a Former Director?
  Former directors can be held liable under a DPN if the debt was incurred while they were still in office, particularly if they resigned after the notice was issued.
• Will the ATO Send the DPN to All Directors?
  Yes. The ATO issues DPNs to all directors of the company, ensuring that each individual is made aware of their potential liability.
• How Does Parallel Liability Work?
  Parallel liability means that all directors are equally responsible for the company’s unpaid debts under a DPN. The ATO can pursue any or all directors for repayment.
• What If I Get a DPN for a Deregistered Company?
  If the company has been deregistered, the directors remain liable for any unpaid tax debts incurred before deregistration.
• Can the ATO Issue a DPN on a Company That Is Already in Liquidation?
  Yes. The ATO can issue a DPN even if the company has entered liquidation, making it essential to address tax debts early.

Are There Any Defences for a Director Who Receives a Director Penalty Notice?

There are limited defences available for directors who receive a DPN:

• Tried But Failed to Pay:
  Directors can claim a defence if they attempted to pay the debt but were unsuccessful, provided they acted responsibly and in the company’s best interest.
• Not Receiving the Notice:
  Claiming you did not receive the DPN is not a valid defence, as the ATO considers a notice served once it is sent to the director’s last known address.
• Resignation as a Director:
  Resigning as a director does not absolve you of liability if the unpaid debt was incurred during your tenure.
• Lodging a Valid Defence:
  If you have a legitimate defence, you must lodge it within 21 days of receiving the notice. Seeking legal advice is strongly recommended to ensure your defence is properly submitted.
• Small Business Restructuring or Safe Harbour:
  Both Small Business Restructuring and Safe Harbour provisions can protect you from personal liability under a DPN, but these options require specific qualifications and timely action.

What Are the Effects on a Director of a DPN?

Failing to respond to a DPN can result in serious consequences, including:

• Personal liability for unpaid company debts.
• Potential legal action from the ATO.
• Long-term damage to your financial standing and credit history.

ATO’s Recovery Methods

When a Director Penalty Notice (DPN) is issued, the Australian Taxation Office (ATO) has several powerful tools to recover unpaid tax debts from company directors. These recovery methods are designed to hold directors personally accountable and ensure the ATO can collect outstanding liabilities. As the ATO continues to intensify its efforts to address unpaid company debts—particularly in relation to GST, PAYG withholding, and superannuation—directors must understand the potential actions the ATO can take.

Here are the three primary methods the ATO uses to recover director penalties:

Offsetting Tax Credits

The ATO can offset any tax credits or refunds owed to the company or individual directors against the unpaid tax debt. This means that instead of receiving a tax refund, the amount will be applied to reduce the outstanding liability under the DPN.

Issuing Garnishee Notices

Garnishee notices allow the ATO to recover debts by directly accessing the funds held by third parties on behalf of the company or its directors. This could involve garnishing bank accounts or wages, significantly affecting the company’s and directors’ financial situation. Garnishee notices are a swift and effective method the ATO uses to secure payment.

Initiating Debt Recovery Legal Proceedings

If the debt remains unpaid, the ATO can initiate legal proceedings against the directors. This could lead to the director’s personal assets being seized to satisfy the debt. Legal action is a serious consequence of non-compliance with a DPN and may result in further financial and reputational damage, including the possibility of bankruptcy.

In addition to these methods, the ATO also sends out Warnings of Possible Director Penalty Notices, urging directors to address unpaid debts before formal action is taken. While this is a preemptive step, it serves as a strong indication that failure to act promptly could result in the issuance of a DPN and subsequent recovery actions.

Understanding the ATO’s recovery methods emphasises the importance of taking swift and decisive action when faced with a DPN. Directors should seek professional advice as soon as possible to explore options like repayment plans, restructuring, or liquidation to manage the debt and avoid personal liability.