One of the more powerful tools that is available to the ATO debt recovery area is the Director Penalty Notice (Division 269 in the Taxation Administration Act 1953), which can make directors personally liable for unpaid PAYG and superannuation of a company.
We have come across two recent incidents where a director has not lodged PAYG and Superannuation quarterly returns, and has been sent a Director Penalty Notice (DPN) but has failed to act on it, and therefore has become personally liable.
There are two strings to the legislation:
1. Those that lodge their returns (PAYG and Superannuation)
If the company lodges both their PAYG and Superannuation returns within three months of the actual date for lodgement, then in order for the director(s) to become personally liable the ATO is required to issue a DPN, sent to the director(s) at their home address listed on the ASIC company records. The DPN gives the director four options to be actioned within 21 days:
- Pay the amount due
- Put the company into administration
- Commence putting the company into liquidation
- Agree a payment arrangement.
If any of options 1-3 are adopted within the 21 days, the personal liability is extinguished.
If option 4 is adopted, the personal liability will return if the company defaults on the payment arrangement.
2. Those that do not lodge returns (PAYG and Superannuation)
If a company does not lodge returns for PAYG or Superannuation with three months of the due date for lodgement, then the director(s) automatically become personally liable for the PAYG and superannuation. The ATO will send a DPN, but the only option for the director(s) is to have the company pay the debt, or pay it themselves.
Accordingly, as advisers to companies and directors it is important to make clients aware, if they do get into some financial difficulty, to continue to lodge PAYG and superannuation returns with the ATO and, if the financial difficulty is not just a temporary cash flow issue, seek expert advice.
If director(s) do not deal with their PAYG and superannuation obligations appropriately and become personally liable, the solutions to these problems become far more complicated as personal assets are at risk.
To learn more about director penalty notices, please contact Gerry Collins at email@example.com or +61 7 3173 5533, or another member of our experienced BDO Business Restructuring Team.