Common Terms Explained: Director Penalty Notice

Have you received a Director Penalty Notice (DPN)? If so, you need to move very quickly or you could lose your house, literally. What is a Director Penalty Notice? A DPN is a warning issued by the ATO informing you that they’ve decided you’re personally liable for some aspect of your business tax debt. This means that there is some issue with your tax liabilities under the superannuation guarantee charge (SCG) provisions or the pay-as-you-go (PAYG) withholding system. It gives you 21 days to do one of: Pay the sum listed on the notice Place your business into administration Place your business into liquidation However, if there is some unpaid amount unreported during the three-month reporting window for either PAYG or SCG, the ATO may employ the ‘lockdown’ rule. This means that the director must pay the penalty, and cannot place the business into administration or liquidation. What Should I Do? The precise response to Director Penalty Notices depend on your personal circumstances. As soon as the 21 days are up and the DPN expires, the ATO can commence proceedings to recover the amount as yet unpaid. This can extend to your personal assets. As such, upon receiving a DPN, we recommend you seek immediate legal advice to determine your best course of action. This could take one of four forms: Pay the liability Begin administration Begin liquidation Raise a defense to the ATO Director Penalty Notice Raising a Defense to the DPN ATO There a few legitimate defenses that could waive your liability in the short term, for example: Demonstrate that the company was placed into administration or liquidation Show that all reasonable steps were taken to meet tax obligations or respecting tax regulations Show that no possible steps were available to meet tax obligations Demonstrate that the director was unable to manage the company at the time of the liability for a suitable reason. If you have been served a Directors Penalty Notice, or are looking to protect yourself from such a stressful experience, contact a professional immediately. Time is not on your side.

July 13, 2023

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Have you received a Director Penalty Notice (DPN)? If so, you need to move very quickly or you could lose your house, literally.

What is a Director Penalty Notice?

A DPN is a warning issued by the ATO informing you that they’ve decided you’re personally liable for some aspect of your business tax debt. This means that there is some issue with your tax liabilities under the superannuation guarantee charge (SCG) provisions or the pay-as-you-go (PAYG) withholding system. It gives you 21 days to do one of:

Pay the sum listed on the notice
Place your business into administration
Place your business into liquidation

However, if there is some unpaid amount unreported during the three-month reporting window for either PAYG or SCG, the ATO may employ the ‘lockdown’ rule. This means that the director must pay the penalty, and cannot place the business into administration or liquidation.

What Should I Do?

The precise response to Director Penalty Notices depend on your personal circumstances. As soon as the 21 days are up and the DPN expires, the ATO can commence proceedings to recover the amount as yet unpaid. This can extend to your personal assets. As such, upon receiving a DPN, we recommend you seek immediate legal advice to determine your best course of action. This could take one of four forms:

Pay the liability
Begin administration
Begin liquidation
Raise a defense to the ATO Director Penalty Notice

Raising a Defense to the DPN ATO

There a few legitimate defenses that could waive your liability in the short term, for example:

Demonstrate that the company was placed into administration or liquidation
Show that all reasonable steps were taken to meet tax obligations or respecting tax regulations
Show that no possible steps were available to meet tax obligations
Demonstrate that the director was unable to manage the company at the time of the liability for a suitable reason.

If you have been served a Directors Penalty Notice, or are looking to protect yourself from such a stressful experience, contact a professional immediately. Time is not on your side.

Author

Andrew Quinn

With 17+ of experience, Andrew Quinn is a transformative force in the insolvency industry, challenging conventional approaches to business turnaround.