ATO warns of impending action

Recently the Accountants Daily published an article warning of impending action by the ATO against Directors who have overdue ATO debt and have not been engaging with the ATO.

“The letters warn company directors that if they don’t actively manage their tax affairs the next communication they can expect to receive from the ATO is a Director Penalty Notice (DPN)—that could result in a director being personally liable for their company’s tax debt”.
Directors who do not actively manage the tax affairs of their company could face personal liability for their company’s ATO debt. To avoid personal liability the Director must pay the debt or put the company into liquidation within 21 days of the date of the notice. The DPN program has been extended beyond PAYG to now include unpaid GST, superannuation, wine equilisation tax and luxury car tax. The ATO also has the ability to report business tax debt information to registered credit reporting bureaus.

What happens if a Director Penalty Notice is issued?
There are two types of DPN:

1. Non-lockdown DPN – issued when statements are lodged (within 3 months of the due date) but debts are unpaid.
2. Lockdown DPN – issued where statements have not been lodged (within 3 months of the due date) and debts are unpaid.

Non-lockdown DPN options
To remit the penalty issued under a non-lockdown DPN, directors (joint and severally) must consider the following to avoid their personal liability the amount nominated on the notice:

1. To place the company into liquidation.
2. To place the company into administration.
3. To appoint a small business restructuring practitioner and commence the small business restructuring process.
4. For the company to pay its debt obligations to the ATO in full.

Critically, the recent Federal Circuit and Family Court of Australia decision in Clifton (Liquidator) v Kerry J Investment Pty Ltd trading as Clenergy [2020] FCAFC 5 found that entering into a payment arrangement does not cause a tax debt which is due and payable to cease to be due and payable. This negatively impacts the non-lockdown DPN options to remit personal liability.

Lockdown DPN options
Directors can only remit this liability by paying the amount in full.

How long do directors have to act?
Directors have 21 days from the date of notice to act accordingly – not from when they receive them. The address registered on the ASIC’s company record is key here. As is any work-from-home or postal/courier service delay.

Which debts are captured under the DPN regime?
For tax periods from 1 April 2020 onwards, personal liability is captured for:

• pay as you go (PAYG) withholding and superannuation
• goods and services tax (GST)
• wine equalisation tax (WET)
• luxury car tax (LCT)

For more information you can view the ATO’s help page here Director penalties | Australian Taxation Office (ato.gov.au)

What should you do?
If you have a company and an overdue tax debt with the ATO you should contact us immediately to enable proactive management of your obligations. Call us on 07 3263 7030 or email tax@mcfillin.com