If you’re a company director, you can be personally held liable for company debts, including company tax debts. The Australian Taxation Office (ATO) is now actively chasing tax debt and issuing Director Penalty Notices (DPNs).
Read on to find out everything you need to know.
What are Director Penalty Notices (DPNs)?
If you receive a DPN, it means that the ATO believes you have breached one of your legal obligations as a company director and is holding you personally financially liable for the breach.
The breaches can include:
- Unpaid pay-as-you-go withholding tax for your staff.
- Unpaid compulsory superannuation guarantee contributions for your staff (currently 10% of their ordinary earnings, and this percentage will increase to 10.5% on July 1 this year).
- Unpaid goods and services tax (GST).
- Unpaid luxury car tax from 1 April 2020 (if applicable).
- Unpaid wine equalisation tax from 1 April 2020 (if applicable).
Types of DPNs
There are two types of DPNs
- Non-lockdown, and
A non-lockdown DPN. You may receive one of these if you have reported your tax debt within the required timeframe, but haven’t paid it. If your company does not pay the amount owing in full or place the company into voluntary liquidation within 21 days from the date on the DPN, the DPN may become a lockdown DPN.
A lockdown DPN is one you may receive if you haven’t reported your debt within the required timeframe (i.e. three months of the due date for tax debts and by the quarterly reporting date for the super guarantee). If your company still can’t pay the outstanding amount, you may be held personally liable as a company director.
Liquidation or resignation is not the answer
You can receive a DPN after your company has gone into liquidation, and you will still be held personally liable indefinitely if it is a lockdown DPN. So liquidating the company may not be the best decision, dependent on advice you receive and your circumstances at the time. All company directors will be equally liable for the full amount on the DPN. This is known as ‘parallel director liability’.
Resigning won’t remove your liability either if the debt was incurred while you were still a company director. Basically, there is no way of running from a DPN!
Entering into a payment plan with the ATO
Engaging a tax debt negotiation specialist is the most effective way of working with the ATO to create a payment plan.
Specialists like Tax Assure have a range of services to help you manage your business and personal tax debt, including:
- Tax debt evaluation to help you identify your best options.
- Tax debt negotiation and resolution on your behalf with the ATO (including negotiating interest and penalty refunds).
- payment plan optimisation to help you make your debt repayments while ensuring your business cash flow.
How to manage your tax debt and cash flow
Earlypay has a range of finance options to help you manage your tax debt, including:
- Invoice finance (to help you get paid earlier for your customer invoices so you can use those funds for repaying your ATO debt).
- Trade finance (to help you pay your suppliers while you focus on repaying your ATO debt).
- Asset finance (allowing you to release the equity in your business assets to help you repay your ATO debt).
The ATO are chasing tax debts. It’s important to seek professional advice as soon as possible to help you manage and repay any company tax debt, as liquidation or resignation are not the answer.
* This article is for general information purposes only. You should obtain your own professional advice on any accounting or tax implications that may be specific to your circumstances.