Director Penalty Notices Resume (with Some Changes)
Reports are rolling in that Directors have started to receive Director Penalty Notices again.
After a long “go slow” on debt pursuit trigged by COVID-19, the ATO has started sending DPNs again and we have noticed some differences in the new notices.
A Refresher on DPN Law
The ATO can pursue the directors of a company for unpaid PAYG, Superannuation Guarantee and GST debt in some circumstances. They do this by sending a Director Penalty Notice (DPN) to the director. Those notices come in two forms:
The traditional (Non-Lockdown) 21 Day DPN
Where a company has a PAYG, Super Guarantee Debt or GST Debt, then the ATO can issue a DPN giving the director 21 days’ notice of the impending personal liability. As long as the director causes the company to pay the debt or wind the company up in those 21 days, the director will avoid personal liability. This DPN applies where the company has been lodging its BASs on time but hasn’t paid the debt.
The newer “Lockdown” DPN
In June 2012, new DPN laws were introduced. These laws apply where a company has not lodged its returns on time. The criterion used is whether the BAS return (for PAYG or GST) or Superannuation Guarantee Charge (SGC) statement (for super) was submitted within 3 months of its due reporting date. If the debts were not properly reported, the ATO can use a harsh version of the DPN that is commonly referred to as a “Lockdown DPN”. The Lockdown DPN informs the director that they are already liable for the amount on the DPN and even a liquidation will not help them to avoid liability.
GST added on 1 April 2020
In 2020 new law added GST to the list. These new powers were not retrospective, so DPNs can only be applied to GST incurred from 1 April 2020 forward. The same Lockdown rules apply as with PAYG and Super Guarantee.
So What Has Changed in 2022?
DPNs sent in 2019 and before listed three options to remit (remove) a Non-Lockdown Director Penalty.
- Cause the company to comply with it’s obligation to pay;
- appoint an Administrator (Voluntary Administration); or
- the company begins to be wound up (Creditors Voluntary Liquidation).
Recent recipients of DPNs in 2022 have reported a fourth option has now appeared, “The company appoints a small business restructuring practitioner (SBRP)”.
Small Business Restructuring (and the SBRP) was introduced in new legislation on 1 January 2021. It is a new form of insolvency appointment that acts like a simplified Voluntary Administration, targeted at small business. The big change in an SBR is company directors stay in control of the struggling business while the Small Business Restructuring Practitioner helps to form a deal with creditors.
The addition of SBR to the list of ways to remit a DPN will be the first time company directors have been able to stay in control of their company whilst also remitting the director penalty.
Some outlets have reported the option to form a payment arrangement and remit the director penalty has just recently been removed. This option was not present on DPNs we have seen as far back as 2019.
What Should You Do?
The general rule remains to make sure you report PAYG, Super and now GST on time, even if the company can’t pay it. Reporting on time is like a suit of armour when it comes to DPNs
If your client has received a DPN, call us for a free appraisal of your options. With these new changes they may even be able to continue trading the company. Send us a copy of the notice and our advisors will walk you through step by step what each part means. Act Fast! If you have a DPN the clock is ticking!