Can you believe it has been 1 year (give or take a few days) since GST* finally hooked up with the Director Penalty Notice (DPN) Regime? It was a relationship we all saw coming for years, but as timing has it, it did not attract as much attention as it ought to have, thanks to a certain virus you may have heard of (I acknowledge that PAYG and SGC are also shacked up with DPN – but I don’t judge).
The one working hardest to push these lovebirds together, the Australian Taxation Office (ATO), has not had the opportunity to flout its success over the last year, in part as it was overwhelmed with Covid-related tasks but mostly because the timing would have been a major PR and economic misstep. However, as the economic impact of Covid passes for the majority and the ATO staff catch their breath, we know the ATO will start to refocus its agenda toward recovery, and this will include outstanding GST through the DPN regime.
We have circulated the technical details of the DPN regime previously, so here is a quick recap:
From 1 April 2020, GST joined the DPN regime. As such, company directors may now find themselves personally liable for GST, pay as you go withholding (PAYG) and superannuation guarantee charge (SGC) – or technically the ATO may impose a penalty on the director equal to those outstanding liabilities. This can happen in one of two ways:
For GST and PAYG, where the company lodges its business activity statements (BAS), reporting GST and/or PAYG liabilities, with the ATO on time, or within 3 months of the due date;
For SGC, where the company lodges an SGC Statement with the ATO by the deadline for the payment of super (note no additional 3-month window for SGC);
and the debts remain outstanding, the ATO will be required to issue a notice (the DPN) to the director showing the outstanding debt (only GST, PAYG and SGC) which they seek to enforce under the DPN regime. The DPN will provide three (3) options to the director to remit their personal liability if undertaken with 21 days of the DPN date. These are; pay the debt, appoint a voluntary administrator or appoint a liquidator. If none of these are done, the director will become personally liable upon the expiration of the notice.
It is important to note, if the company enters into a repayment arrangement with the ATO, whether inside the 21 days or not, the personal liability will continue to apply for the director so long as the DPN has been issued and expired.
For GST and PAYG, where the company fails to lodge its BAS, reporting GST and/or PAYG liabilities, with the ATO on time, or within 3 months of the due date;
For SGC, where the company fails to lodge an SGC Statement with the ATO by the deadline for the payment of super;
then the director will be automatically personally liable for those debts as soon as the relevant lodgement becomes outstanding per the above timeframes. When the ATO seeks to pursue the director in this instance, a DPN must be issued, as somewhat of a formality, however there are no options available for the director to avoid becoming personally liable.
It is important to note that any incoming company director will become personally liable for the company’s outstanding GST (relating to 1 April 2020 and beyond), PAYG or SGC that predates their appointment if they do not take steps to do one of the following within 30 days of their appointment:
- Pay the outstanding debts in full;
- Appoint a small business restructuring practitioner;
- Appoint a voluntary administrator; or
- Appoint a liquidator.
Resigning within 30 days of the appointment will not protect the individual from the personal liability. Accordingly, it is critical that the company’s lodgement history and outstanding GST, PAYG and SGC forms part of the due diligence review prior to installing a new director to a company.
It can be tempting to tune out to first-anniversary announcements, public declarations of love and the like, but this is one to ensure your clients take notice of!
SV Partners is well placed to advise your clients on their personal exposure under the director penalty notice regime. Seeking advice early can be instrumental in securing a superior outcome and accordingly our insolvency experts make themselves available for cost and obligation free meetings with clients at short notice at our many office locations.
*GST, Wine Equalization Tax (WET) and Luxury Car Tax (LCT) have all been included in the DPN regime from 1 April 2020, however for the sake of simplicity I have just referred to it as GST in this article.