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Directors can no longer seek to enter a payment arrangement with the ATO to avoid personal liability for company tax debts once a non-lockdown director penalty notice (DPN) has been issued.
Recent change to options for non-lockdown DPNs
The ATO has recently made a significant change to the options available for directors to address non-lockdown DPNs.
The options available to directors critically no longer include entering a payment arrangement with the ATO following the issue of the non-lockdown DPN, and in circumstances a non-lockdown DPN is issued directors must do one of the following to avoid personal liability:
DPNs are notices issued by the ATO to directors of companies that have overdue tax debts, including PAYG withholding, net GST and SGC obligations.
It is the first step taken by the ATO before pursuing the director personally for company tax debts. Clearly this can have severe ramifications for directors individually.
There are two types of DPNs:
1. Non-lockdown DPN
2. Lockdown DPN
Critically, the 21-day period referred to above commences from the date of the DPN, not when it is received.
Although issued with a DPN, a director will not be liable for a director penalty if:
What the change in options means for directors
With increased ATO collection commencing and a further ramp up expected following the Federal election, directors of companies that have tax debts outstanding should seek to engage early with the ATO. Directors cannot simply rely on the ATO’s recent inactivity in the vain hope outstanding taxes will not be collected, and in light of the changes to non-lockdown DPNs there is a real need for engagement before such a notice is issued.
Directors of companies with significant tax debts (especially those that pre-date lockdowns) should consider the safe harbour regime. It should be noted however that the safe harbour of itself will not cure personal liability if a DPN is issued, and rather it is the actions taken as part of the plan that are critical including engagement with the ATO.
Directors should seek to avoid an unplanned insolvency event in circumstances where a DPN is issued and there is only 21 days from the date of such notice to figure out a solution. Safe harbour can allow the appropriate contingency planning, even if an outcome with the ATO cannot in fact be reached. Such planning will allow a better outcome for creditors, even if that involves a restructure through a deed of company arrangement. Whether intended or not, the changes to the options available to address non-lockdown DPNs will likely lead to an increase in insolvency appointments as directors seek to avoid personal liability.