Director Penalty Notices

Table of Contents

    Directors are legally obligated to ensure their firms comply with requirements regarding pay-as-you-go (PAYG) withholding, goods and services tax (GST), and superannuation.

    Failure to meet these obligations can result in directors being held personally liable for the amounts the firm should have paid.

    Let’s get straight to the point

    Directors must ensure compliance with PAYG withholding, GST, and superannuation requirements to avoid personal liability.

    The Director Penalty Notice (DPN) regime, expanded in 2020, includes Non-Lockdown and Lockdown Penalty Notices. 

    Non-lockdown DPNs apply when filings are timely but debts are unpaid, allowing 21 days to respond. Lockdown DPNs apply for late filings, with penalties remaining until debts are settled.

    Defenses against DPNs include illness, valid excuses for non-participation, and taking reasonable precautions to settle debts.

    To prevent DPN issues, professional bookkeeping services like Bookkept ensure timely and accurate lodgements.

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    Key Legislative Changes

    On March 5, 2020, new laws were enacted to extend the Director Penalty Notice (DPN) regime to include GST, the Luxury Car Tax, and the Wine Equalisation Tax. The legislation also strengthened the laws governing DPNs related to the superannuation guarantee.

    DPN Types and Compliance

    1. Non-Lockdown Penalty Notice

    Non-lockdown DPNs are issued to directors who lodged business activity statements (BAS) and instalment activity statements within three months of the due date and superannuation guarantee charge (SGC) statements within one month and 28 days after the quarter’s end but have not paid the associated debts.

    Directors have 21 days from receiving the notice to address the debt, or the penalty will apply.

    2. Lockdown Penalty Notice

    Lockdown DPNs are issued when a company fails to lodge BAS, instalment activity statements, or SGC statements within the specified deadlines. In these cases, the penalty remains indefinitely unless the debt is settled in full.

    Defending Against a DPN

    Directors can defend against a DPN if they can demonstrate one of the following:

    • They did not participate in the management of the company due to illness or other valid reasons.
    • They took all reasonable precautions to ensure:
    • The outstanding balance was settled.
    • The company appointed an administrator.
    • The company initiated winding down procedures as per the Corporations Act 2001.
    • For unpaid SGC liabilities, the company applied the Superannuation Guarantee (Administration) Act 1992 with reasonable care.

    It is important to note that reliance on others to fulfil these obligations is not a valid defence.

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    Preventing Director Penalty Notice Issues

    Bookkept can manage your company’s BAS and retirement plans, keeping you informed at every stage to ensure you fulfil your responsibilities as a director. Our comprehensive bookkeeping services include BAS submissions and establishing payment arrangements.

    Conclusion

    Ensuring compliance with the Director Penalty Notice (DPN) regime is crucial for directors to avoid personal liability.

    Directors can better navigate their legal responsibilities by understanding the distinctions between non-lockdown and lockdown penalty notices and the available statutory defences. 

    Partnering with a professional bookkeeping service like Bookkept can further safeguard against these liabilities by ensuring timely and accurate lodgement of BAS, instalment activity, and SGC statements.

    With our expertise and proactive management, directors can confidently focus on their business operations, knowing their compliance obligations are being met. 

    Frequently Asked Questions

    What Are The Consequences Of Ignoring A DPN?

    Ignoring a DPN can result in the ATO taking legal action to recover unpaid taxes from the director’s personal assets, making it crucial to respond promptly.

    Can A Director Challenge A DPN?

    In some cases, directors may dispute the amount owed if they believe there has been an error. However, DPNs are legally enforceable, and challenging them is typically complex. Consulting a tax professional or legal advisor is recommended.

    How Can Directors Avoid Receiving A DPN?

    Directors can avoid DPNs by ensuring the company meets all tax obligations, such as timely lodging and payment of PAYG and superannuation contributions. Maintaining accurate records and communication with the ATO is also essential.

    Are New Directors Liable For Previous Debts?

    A new director may become liable if they don’t take appropriate steps within a set time frame (usually 30 days of appointment) to address outstanding tax debts.

    What If I’ve Resigned As A Director?

    Directors may still be held liable for debts incurred during their tenure. Resigning does not absolve responsibility for unpaid company tax obligations accrued while they were a director.

    Brendan Thorp is a Director and Business Advisory Specialist at Bookkept, bringing eight years of dedicated experience in tax and small business advisory. As a Certified Practising Accountant and registered Tax Agent, he specialises in helping businesses optimise their operations through strategic financial solutions and digital transformation. Brendan holds dual qualifications from the University of Newcastle in Commerce and Business, and is known for his ability to translate complex tax regulations into actionable business strategies. When he's not advising clients across various industries from hospitality to healthcare, you'll find him actively engaged in community leadership through local sporting clubs and professional associations.

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    Bookkept offers expert accounting, compliance, and business advisory services to small and medium businesses in Melbourne & Australia-wide, specialising in Xero/MYOB and strategic growth solutions.

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