Many people operate through companies, or companies as trustee, believing they are personally protected by limited liability.  Not completely!

What is a DPN?

DPN's have been around for years, and these allow the ATO to collect unpaid PAYG Withholding tax and superannuation not from the Company but from the directors, or even just one of them. 

Why is a DPN significant

The directors are no longer protected by the corporate structure for these particular debts.

How does a director become liable?

- If BAS are lodged within 90 days of the date due and the liabilities are unpaid, the ATO can serve a notice giving the directors 21 days to take action (the 21 days runs from the date of the Notice so addresses need to be up to date with ASIC, the wrong address is not a defence).  The actions are to pay, including make an arrangement to pay, or seek administration or liquidation.  If one of these actions is taken there is no personal liability.

- If the BAS were not lodged within 90 days and the PAYGW and Super are still unpaid, the director is automatically subject to a DPN and becomes personally liable for those debts.  There are no other options, only payment.

Is it possible to avoid personal liability?

The smart answer is make sure these are paid, and ensure all BAS are lodged within 90 days of the due lodgement date.  That gives time to set up a payment arrangement, or liquidate if need be.  This way, the director avoids personal liability.

Does the ATO always issue a DPN?

The short answer is no.  There does not seem to be any hard policy, it is a discretionary power.  It does seem to be used where the company has a history of non-payment, and other factors can include the amount of tax, compliance history, perhaps the age of the debt, and even the financial position of the director(s).  The ATO is required to make commercial decisions.

In Summary

Lodge BAS on time, seek a payment arrangement.  If you need help for either, call us early.

If any notice is issued the Directors need to act quickly, and get good advice which is relevant to the circumstances.