It is now easier for a director to become personally liable for company tax debts.  This is not an issue to be ignored and must be dealt with as set out in the Tax Act.

There are two types of Director Penalty Notices.

21 Day Notice

This one has been around for years, and it gives a director 21 days to act or then become personally liable for the company's PAYG or SGC debts.  The director must within the time either pay the debt, make an acceptable arrangement to pay, or put the company either into Administration or Liquidation.

There is no defence, so the advice is to act within the 21 days.  There is a PS too: The ATO is only required to send it to the last address notified, and so the Notice is valid even if you don't receive it.

The New Director Penalty Notices (DPN's)

These came into law in June 2012 and can even apply retrospectively, as far back as 2009.  Directors are personally liable if PAYG or SGC amounts are unreported and unpaid three months after the due date for lodging a return.  The director does not have the option to put the company into liquidation.

There are some unexpected consequences.  Even if the company pays, the director may still be required to pay the penalty (so paying twice).  Individual sub-contractors may be entitled to superannuation, and as no SGC return will have been lodged, the director has to personally pay the superannuation.  The ATO is presently chasing super for the last three years where it believes the contractor is really a common-law employee.

Directors need to change behaviour.  Don't fail to lodge returns but lodge on time and perhaps seek an arrangement to pay over some acceptable period.

Other things to know about DPN's

- A new director becomes liable for ATO debts 30 days after appointment.

- The ATO is permitted to estimate the amounts due.

- If a super debt is for a contractor, the director may not be liable if reasonable care was taken in determining whether the contractor was truly independent.

- The DPN can be served care of the tax agent (at least it may be received within time and so acted on).

- A 'possible' defence may be a serious illness so the director did not participate in management, or if the director took all reasonable steps to ensure company compliance.

Advice to Directors

Make sure all past BAS including PAYG are lodged, and the quarterly SGC Statements for super.  This may prevent you becoming personally liable.  However, each situation is different and, being tax, complicated.  So if you are concerned, get the information together and call us.