Avoiding Personal Liability
DPN laws are designed to change the behaviour of directors. In the past, directors have tended to leave tax debts at the bottom of the payments pile. That was often achieved by directors simply not complying with tax lodgement and payment requirements – BASs and IASs were not lodged on time and tax debts were often the last to be paid. That is a very bad approach!
The ATO’s view is that PAYG is an amount deducted from an employees wages and so it is NOT like a simple trade creditor of a company. If a company uses those funds then the ATO view is that the company has taken the employees money.
Hence, the tough Laws! The prime purpose of DPNs is to encourage directors to ensure a company lodges returns on time and takes action if a debt can’t be paid. Note that:
- If a return is not lodged within three months of the due date then the ATO can issue a Lockdown DPN – a director is liable as soon as that DPN is issued and it can be issued years after the debt arose;
- If a return is lodged within three months, then the ATO is a bit more lenient, even if the debt is unpaid – the ATO will issue a 21 Day DPN which gives the director time to take action. It is only if the director takes no action that they become personally liable.
Under Superannuation Guarantee law if an employer is not able to meet their superannuation obligations by the due date for payment they are required to lodge a “Superannuation guarantee charge statement – quarterly (NAT9599)” with the ATO. It is imperative that a company lodge a NAT9599 with the ATO within 3 months of the due payment date or its directors will be automatically personally liable for the company’s Superannuation Guarantee Charge (SGC) liability. SGC is made up of the shortfall in Super payments plus interest (10% pa) and a processing fee (currently $20 per employee, per period). So unlike PAYG where a director is made liable for the shortfall only, for Super the director is liable for the shortfall plus interest and fees!
- Get your company tax returns up to date and lodge them;
- Stay familiar with the company’s financial position and monitor that quarterly and monthly BAS Returns are lodged on time (do this even if the company can’t pay the debt due);
- Make sure your address details with ASIC and the ATO are current so you avoid the situation where you don’t receive a DPN;
- If the company can’t pay the amounts due for PAYG and Superannuation contact us for advice.
Tax law can be a complex area and circumstances vary, so we recommend a telephone call for your initial consultation. We will then gladly meet you or just confirm our advice and quote in writing.