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Director Penalty Notices: the ATO’s weapon of director mass destruction

7 tips to help directors manage ATO and DPN risks

Director Penalty Notices (DPNs) are a powerful tool in the ATO’s war chest for recovering certain unpaid tax and superannuation debts from company directors. Which is why it’s crucial for directors and their accountants to arm themselves with knowledge and know how to reduce the risks.

A DPN is a formal notice issued by the ATO to directors of a company to make them personally liable for things like unpaid superannuation, PAYG and GST. And because many business owners run their businesses through a company structure, it means the DPNs can be a major burden on directors. That’s why it’s so important to understand what DPNs are and how you can lessen any risks.

Types of DPNs

There are two types of DPNs: lockdown and non-lockdown DPNs.

  1. A lockdown DPN is issued to directors where the company has not lodged its:
    • BAS within three months of the due lodgement date; or
    • SGC Statement by the lodgement due date; and
    • the tax debt has not been paid.
  2. A non-lockdown DPN is issued to directors where the company has reported its BAS within three months of the due lodgement date or its SGC statement on time, but the obligations remain unpaid.

New director? Do your homework

For those about to become a new director, it’s also vital to do your due diligence. In particular, it’s extremely important to check whether or not the company has any unpaid or unreported PAYG tax, GST or Superannuation Guarantee (SGC) liabilities. Once you’re appointed as a company director, you become personally liable for any unpaid amounts – even for periods prior to your appointment. And even if you resign as a director of the company, while there’s a 30 day ‘window’, if the company liability isn’t paid or an external administrator isn’t appointed, you remain liable for the liabilities that were due before the date of your resignation.

7 tips to help directors manage ATO and DPN risks

  1. Lodge on time (or at least less than 3 months after the lodgement due date)
  2. Maintain director’s current residential address details with ASIC
  3. Open and read correspondence received from the ATO. Seek help if you do not understand what the correspondence is saying
  4. Communicate and engage with the ATO; do not stick your head in the sand and ignore them
  5. Watch for insolvency warning signs
  6. Communicate regularly, actively and meaningfully with your trusted advisers, such as your accountant
  7. Get advice if you suspect your business is in financial difficulty or is having trouble paying its debts when they are due – including its tax and super obligations.

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*The Small Business Restructuring Process is accessible to incorporated businesses with liabilities of less than $1 million. To be able to propose a deal the business must have paid all employee entitlements and made all tax lodgements.


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