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Tax Debt Collection Post Covid-19: Director Penalty Notice

John Hodgkinson

4 May 2022

INTRODUCTION

During the Covid-19 pandemic, the Australian government implemented economic response measures like Jobkeeper, instant asset writeoffs, accelerated depreciation and GST credits to boost cash flows.

The ATO also took a raft of administrative actions; curtailing enforcement activities, negotiating payment plans for tax debts, remitting interest and penalties and allowing extensions of time for yearly repayment of Division 7A loans. It chose not to expend compliance resources on scrutiny of a range of taxpayer transactions and arrangements.

DIRECTOR PENALTY NOTICES AND PERSONAL LIABILITY

However, with the easing of COVID-19 restrictions, the ATO has recommenced debt recovery activity, especially the issue of Director Penalty Notices (DPN).

A DPN may be issued if business activity statements, superannuation guarantee statements and/or instalment activity statements are not lodged within three months of the due date.

The penalty will not be remitted until the company pays in full. A DPN may also be issued if Business Activity Statement, Super Guarantee statements or instalment activity statements are lodged but the PAYG withholding or SGC debt remains unpaid.

The director will be personally liable for those tax debts unless the company pays the entire amount or is placed under external administration within 21 days.

The onus is on the director to demonstrate that he or she took every reasonable step to ensure the company complied with its tax obligations or that no such steps could have been taken.

Alternatively, a director may show that he or she was unable to ensure compliance because of a serious illness or other reason.

In the case of an unpaid SGC liability, a director can defend liability on the basis that the company interpreted the superannuation law in a “reasonably arguable” way.

The ATO can collect the penalty by deducting it from any personal income tax refund or imposing a garnishee notice.

RECOMMENDATIONS

• Company directors must be confident that the company implements robust tax reporting and payment procedures. Anyone who accepts appointment as a director should take immediate steps ensure the company has no outstanding tax liabilities.
• A DRP can be issued to a director if tax obligations were outstanding at the date of appointment and remain unsatisfied for 30 days afterwards.
• Even if a director resigns, he or she remains exposed for GST, PAYG withholding and SGC liabilities that were outstanding at the date of resignation or that fall due in the next following reporting and payment period.

[ Tax Debt Collection Post Covid-19: Director Penalty Notices ]

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This communication is sent by Kreisson Legal Pty Limited (ACN 113 986 824). This article contains general information only and is not a substitute for considered legal, accounting or business advice. It does not take into account your particular circumstances, objectives, appetite for risk or financial situation. We are not tax or BAS agents or specialist tax advisers. You should not rely on this article without seeking detailed advice from discipline experts. The contents are copyright and should not be reproduced, re-published, adapted or used without the author’s permission.