During the COVID-19 pandemic, the ATO offered administrative relief to businesses who were experiencing financial difficulty. However, Directors were not absolved from their personal liability under the director penalty regime. Now that lockdowns have ended and we are resuming something that resembles a ‘normal life’, the ATO has recommenced its quest to recoup unpaid taxes, including issuing Director Penalty Notices.
Under the Taxation Administration Act, company directors are obligated to ensure that their company meets its tax obligations, such as GST, superannuation guarantee charges and PAYG withholding. If these payments are not made and become overdue, company directors become personally liable for penalties.
In order to pursue and recoup such losses, the ATO must first issue a Director Penalty Notice. There are two forms of Notices. These are:
- Non-Lockdown Director Penalty Notice (NLDPN): where BAS statements have been lodged within 3 months of their due date, but the debt to the ATO remains unpaid; and
- Lockdown Director Penalty Notice (LDPN): issued when the BAS statements have not been lodged (or were lodged more than 3 months after the due date) and the debt to the ATO remains unpaid.
So, what do you do if you have been issued with any of the above Director Penalty Notices?If you have been issued with a NLDPN, in order to avoid a penalty you must, within 21 days of the date of the notice, either pay the debt in full, or if you cannot do so, appoint voluntary administrator or small business restructuring practitioner, or place the company into liquidation.
If you have been issued with a LDPN, you must pay the debt in full in order to avoid personal liability. There are no other options if issued with this type of Notice.
Regardless of the type of Director Penalty Notice that you have received, we encourage you to contact us so that we can assist you with navigating the available options. There may also be defences available to you, which we can consider and recommend if appropriate.
It is anticipated that the ATO will continue to increase it’s tax collection, which in the most part was placed on hold during the pandemic. Furthermore, Directors can no longer avoid penalties by entering the company into a payment plan. Accordingly, the ATO is now warning Directors that they must take action on company tax debts, or face the risk of full enforcement action.
If you require assistance, or have any queries about anything in this article, please do not hesitate to contact us.
Senior Associate, Workplace Relations/Employment Law