A Director Penalty Notice (DPN) is a document that may be issued by the Australian Taxation Office (ATO) to the director of a company to prompt directors to ensure their company meets its taxation obligations.
If a company fails to pay PAYG withholding amounts to the ATO, the ATO can issue to the director a DPN. The director will have 21 days from the date of the DPN to either:
- Pay the debt to the ATO; or
- Place the company into voluntary administration or liquidation.
If the director fails to take one of the above options with the 21 day period, the director will be personally liable for the company’s tax debts and can be sued in his or her personal name for recovery of the debt by the ATO.
However, it is more difficult for a director to avoid personal liability for a company’s tax debts on issue of the DPN when the director has failed to ensure the timely lodgement of tax returns by the company.
If a company fails to lodge company IAS and/or BAS returns within 3 months of the due lodgement date and fails to remit funds to the ATO, the ATO can also issue a ‘Lockdown’ DPN to the director of the company. In this case, the director will only be able to avoid personal liability for the debt by paying the debt to the ATO within 21 days of the date of the DPN, or by relying on the defence provisions. A director will not be able to avoid personal liability for the debt by placing the company in voluntary administration or liquidation where a ‘Lockdown’ DPN has been issued.
Accordingly, it is important for directors to act swiftly once they have received a DPN to avoid personal liability for debts of the company.
The ATO may also issue ‘Lockdown’ DPNs for a company’s failure to lodge IAS and/or BAS, even if the company is already placed in voluntary administration or liquidation. Accordingly, directors should continue to lodge returns even when the company has been placed in liquidation, to avoid personal liability for tax debts of the company.
If you have received a Director Penalty Notice and wish to obtain advice regarding the effects of the Notice, please contact McLaughlins Lawyers.