ATO Alert

Now, more so than ever before, the Australian Tax Office (ATO) are forcing the hands of directors to decide on the future direction of their company’s affairs.

The current reports are that the ATO is looking to reduce around $50 billion worth of debt, with about $34 billion owing to the tax office by small businesses.

As insolvency practitioners, we are witnessing first-hand the issuing of Director Penalty Notices (DPNs) by the ATO daily. Historically, DPNs were only reserved for debts where there had been clear and deliberate tax avoidance, or there was some other compliance reason justifying their issuance. The Deputy Commissioner of Taxation (DCT) is now issuing DPNs as a matter of course where a small business has an outstanding debt. DPNs are serious and have immediate consequences.

We encourage our network to immediately review their client records/database to ensure that their registered office is up to date with ASIC and to ensure client director address details are updated on the ASIC database. The ATO can rely on information in the ASIC database held for the company or a director when deciding which address to issue a DPN to (s.269-50). We have seen numerous situations where DPNs become locked down because they were posted to an old address, which was not updated on the ASIC database.

Without sounding like a broken-down record, the reporting of amounts for GST, PAYG and SGC by way of BAS, IAS and SGC is critical to minimise personal exposure to current and former directors.

If your client receives a DPN, they have 21 days to respond to it. The 21 days starts from the date that it is posted by the DCT, which invariably will be the date of the notice: s.269-25(4). By doing nothing and not acting in time, it becomes a parallel debt – both director and company owe the debt.

If a DPN is not complied with, the DCT can immediately take steps to enforce the debt such as issuing a garnishee notice or commencing proceedings. By not responding in the 21 days, any components of the DPN that were not locked down become locked down and the only available way to defend a DPN is by having a valid defence or otherwise proving a defect with the notice.

It is critical to also note the following:

  • Check the amounts in the DPN to ensure they match with the Company’s records – having seen many DPNs you will need to understand why amounts for a particular month/quarter may appear in both Columns 4 & 5;
  • DPNs can be based on estimates if amounts are not reported. This may create further headaches for company directors.

If you need to discuss client concerns regarding DPNs, please do not hesitate to contact us.

Article written by Michael Carrafa (Executive Director) – Melbourne

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