The ATO rolled up the sleeves in 2022, ending its debt recovery hiatus by issuing a claimed 50,000 Director Penalty Notice (DPN) warning letters and almost 18,500 actual DPNs….and the ATO has flagged firmer action to recover unpaid debt!
It is reported only one-third of directors responded to the DPNs.
So, how does this impact directors that did not comply with DPNs? What action can the ATO take to pursue directors?
Firstly, it is useful to briefly explain the DPN regime.
- Directors are not automatically liable for company ATO or superannuation debts incurred.
- Director liability arises when a company does not:
- pay on time and lodge its BAS and/or Superannuation Guarantee Charge (SGC) Statements within strict timeframes.
- If lodgements are done within the required time – liability is only pursued by the ATO if it issues a DPN and this is not complied with.
The DPN regime is explained in more detail in a prior SV Partners’ newsletter – What you need to know about ATO Tax Debt and the Consequences of Failure to Pay | SV Partners Website.
If your client has not complied with a DPN, they can avoid personal liability if:
- The debt is paid
- They have a valid defence
- The ATO elects not to pursue the debt due to extenuating circumstances (which in our experience is very rare). We have even seen DPNs issued to executors of deceased estates!
If the DPN liability is not paid or cannot be avoided, the ATO can pursue directors personally for the DPN debt owed. This can involve:
- Issuing a notice to garnishee assets or income
- Withholding taxation refunds to offset/reduce the debt owed
- Reporting defaults to credit reporting agencies, which may adversely impact your client’s credit rating and limit their ability to borrow money
- Pursuing legal proceedings to bankrupt the director
If a DPN is not paid or dealt with, the director’s current and future personal assets and income are at risk of being lost to repay the ATO debt. Assets at risk can include bank accounts, cryptocurrency, vehicles, shares, property and even interests in deceased estates. The director’s share of jointly owned assets is also at risk!
Importantly, there is no time limit on the ATO pursuing debts owed (unlike most other debts where time limits apply). Even if the debt is ‘written-off’ by the ATO, it can be reinstated by the ATO at a later date (at its prerogative).
If you have a client with an outstanding DPN liability, don’t let it linger and remain unresolved….your client’s future financial security and prosperity may be at risk.
Your local SV Partners’ team is always available to assist you and your clients with any DPN or other related insolvency needs.
Article written by Jason Cronan (Director) – Sunshine Coast