What Is A Directors Penalty Notice?
Directors are legally responsible for ensuring that their company meets its pay as you go withholding, GST and superannuation obligations. If a company fails to comply with their obligations, company directors are held personally liable for the amount the company should have paid.
Legislation was passed on 5 March 2020 to extend the Director Penalty Notice (DPN) regime to GST, Luxury Car Tax, and Wine Equalisation Tax. In that same piece of legislation, the rules around DPNs as they apply to superannuation guarantee were also tightened.
The ATO must not commence proceedings to recover a director penalty until 21 days after a DPN is issued to a director. There are two types of DPNs: Non-Lockdown Penalty Notice, and Lockdown Penalty Notice.
Non-Lockdown Penalty Notice
Non-lockdown DPNs are issued to directors that have lodged business activity statements and instalment activity statements, within three months of the due date for lodgement and superannuation guarantee charge (SGC) statements within one month and 28 days after the end of the quarter that the superannuation charge contribution relates to, but the debts remain unpaid. The notice gives directors 21 days to take action, which results in the penalty being cancelled.
Lockdown Penalty Notice
Lockdown DPNs are issued to directors where a company has failed to lodge business activity statements and instalment activity statements within three months of the due lodgement and SGC statements within one month and 28 days after the end of the quarter that the superannuation charge contribution relates to. The penalty permanently locks down on the director and there is no ability to cancel the penalty, other than by paying the debt in full.
Defending Against A Director Penalty Notice
The director penalty regime provides statutory defenses where a director can show they are not liable for director penalties. A director will have a defense and not be liable for a director penalty if:
- you did not take part in the management of the company during the relevant period because of illness or for some other good reason
- you took all reasonable steps, unless there were no reasonable steps you could have taken, to ensure that one of the following three things happened
- the company paid the amount outstanding
- an administrator was appointed to the company
- the directors began winding up the company (within the meaning of the Corporations Act 2001)
- in the case of an unpaid SGC liability – the company treated the Superannuation Guarantee (Administration) Act 1992 as applying in a way that could be reasonably argued was in accordance with the law, and took reasonable care in applying that Act.
The courts have held that these defenses must be proved for the entire period the director was under the obligation & that it is not a defense that you relied on others to ensure your obligations were met.
How Do I Stop This From Happening?
Bookkept can take charge of the administration of a business’ BAS/Superanuation and keep you informed every step of the way to ensure you’re meeting your director duties. We offer a range of bookkeeping services that include lodging BAS and setting up payments for these.
If you are looking for an accountant or thinking it’s time you made a change, please give us a call on (03) 8568 3606. With over ten years of combined experience working with a diverse range of clients, Bookkept is well equipped to assist your business.