During the Covid-19 pandemic, the Australian government implemented economic response measures like Job keeper, instant asset write offs, and accelerated depreciation to boost cash flows.
The ATO also took a raft of administrative actions; curtailing enforcement activities, negotiating payment plans for tax debts, remitting interest and penalties and allowing extensions of time for yearly repayment of Division 7A loans. It chose not to expend compliance resources on scrutiny of a range of taxpayer transactions and arrangements.
However, with the easing of COVID-19 restrictions, the ATO has recommenced debt recovery activity, especially the issue of Director Penalty Notices (DPN).
Company directors are legally responsible for ensuring that their company meets its pay as you go (PAYG) withholding, “net” GST (goods and services tax, wine equalisation tax and luxury car tax) and superannuation obligations. If a company fails to comply with their obligations to pay the debt by the due date for payment, company directors are held personally liable for the amount the company should have paid.
A DPN may be issued if business activity statements, superannuation guarantee statements and/or instalment activity statements are not lodged within three months of the due date.
A DPN may also be issued if Business Activity Statements, Super Guarantee statements or instalment activity statements are lodged but the PAYG withholding or SGC debt remains unpaid.
The director will be personally liable for those tax debts unless the company pays the entire amount or is placed under external administration within 21 days of the date of the notice.
The onus is on the director to demonstrate that they took every reasonable step to ensure the company complied with its tax obligations or that no such steps could have been taken.
Alternatively, a director may show that they were unable to ensure compliance because of a serious illness or other reason.
The ATO can collect the penalty by deducting it from any personal income tax refund or imposing a garnishee notice.