Company directors 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 about helping your at-risk clients.
What are Director Penalty Notices (DPNs)?
If your client receives a DPN, it means that the ATO believes they have breached one of their legal obligations as a company director and is holding them personally financially liable for the breach.
The breaches can include:
- Unpaid pay-as-you-go withholding tax for staff.
- Unpaid compulsory superannuation guarantee contributions for staff.
- 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
- Lockdown.
A non-lockdown DPN. This may arise if the business has reported its tax debt within the required timeframe, but hasn’t paid it. If a 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 issued when a business hasn't reported its 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 the company still can’t pay the outstanding amount, the company director may be held personally liable.
Liquidation or resignation is not the answer
A DPN can be issued after a company has gone into liquidation, and the former director 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 received and the 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 the liability either if the debt was incurred while the director was active. 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 manage business and personal tax debt, including:
- Tax debt evaluation to help identify the best options.
- Tax debt negotiation and resolution on behalf of the business with the ATO (including negotiating interest and penalty refunds).
- Payment plan optimisation to help make debt repayments while ensuring business cash flow.
How to manage tax debt and cash flow
Earlypay has a range of finance options to help your clients manage tax debt, including:
- Invoice finance — this helps the business get paid earlier for their customer invoices, so they can use those funds for repaying ATO debt.
- Asset finance — allows a business to release the equity in their business assets to help repay 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.
If you'd like to learn how Earlypay can help you boost your clients’ working capital to fund growth or keep on top of the day-to-day operations, contact Earlypay’s helpful team today on 1300 760 205, visit our sign-up form or contact [email protected].
If you'd like to learn how Earlypay's Invoice Finance & Equipment Finance can help you boost your working capital to fund growth or keep on top of day-to-day operations of your business, contact Earlypay's helpful team today on 1300 760 205, visit our sign-up form or contact [email protected].