What is a DPN?
A Director Penalty Notice (DPN) is a notice issued by the Australian Taxation Office (ATO) to a director of a company in respect of unpaid tax liabilities of a company.
What are the implications?
If a DPN is not addressed, the recipient will become personally liable for the company’s debts as detailed in the notice. Note that the company remains liable for the same debts.
What can be claimed?
The ATO can claim unpaid:
- PAYG
- Superannuation
- GST
When will the ATO issue a DPN?
The ATO will only issue a DPN to a director when a company has not:
- Reported its obligations on time; and/or
- Paid its debts.
In our experience, DPNs are only issued after other informal methods of debt recovery are explored (eg. demand letters, calls to directors/accountants) and usually only after a company has failed to engage with the ATO concerning its unpaid debts.
What can be done?
- PAYG & GST
How a DPN is issued in respect of unpaid PAYG and GST can be addressed depends on whether the company has reported its PAYG and GST.
If reported within 3 months of the due date, the personal liability associated with the DPN can be avoided if within 21 days of the notice being issued:
- The debts detailed in the notice are paid;
- The company appoints a voluntary administrator;
- The company appoints a small business restructuring practitioner; or
- The company is wound up.
If the PAYG and GST is reported more than 3 months of the due date, the only way to avoid personal liability is to pay the debt.
- Superannuation Guarantee Charge (SGC)
A company is required to report and pay employee superannuation within 28 days of the end of each quarter. If the company doesn’t report and pay those amounts within 28 days, the company must lodge and pay a Superannuation Guarantee Charge Statement within a further month.
If a DPN relates to SGC that was reported within the required timeframe, a director can avoid personal liability for the amounts specified in the notice by taking the steps outlined above.
If the SGC was reported after the due date, the only way to avoid personal liability is to pay the debt.
- Defend the claim
A director may defend a DPN on the basis that:
- they did not take part in the management of the company due to illness or some other reason;
- they took all reasonable steps to cause the company to:
- pay the debts detailed in the notice;
- appoint a voluntary administrator;
- appoint a small business restructuring practitioner; or
- wind up the company.
What are the consequences of not addressing a DPN?
A director that receives a DPN and doesn’t address the debt may:
- be subject to legal proceedings to recover the amount of the notice as a debt. This may ultimately result in bankruptcy proceedings;
- receive a garnishee notice issued against the director’s personal bank accounts, or
- have their personal tax refunds or other credits set off against the debt.
How much time do I have to deal with a DPN?
A director will have 21 days from the date the notice was posted or served.
The ATO will use the director’s address as registered with ASIC. It’s therefore important to notify ASIC of any changes to address as quickly as possible.
Given Australia Post’s service standards at the moment, this may leave a director with limited time to deal with such a notice. Reacting quickly is therefore important to maximise the options available.
What should I do if I receive a DPN?
The most important thing that you should do upon receiving a DPN is to act on it immediately, which includes any of the following:
- cause the company to pay the associated liability to the ATO;
- seek legal advice on possible options to defend against the DPN;
- if the company’s lodgements were made on time and the company is unable to pay the liability, place the company into any of the abovementioned insolvency administrations;
- if the company’s lodgements were not made on time, consider:
- paying the ATO from your personal assets;
- negotiate with the ATO regarding payment; or
- consider formal personal insolvency steps (e.g. Bankruptcy, Personal Insolvency Agreement etc.)
SV Partners are experienced in providing the relevant options upon receipt of a DPN. Please reach out to us for a free, no-obligation meeting to discuss your options.
Article written by Stuart Otway (Director) – SV Partners Adelaide