The ATO has a broad range of powers regarding its ability to collect debts owed by a company. One of these powers is the issuing of a Director Penalty Notice (DPN) to a director of a company where that company has an unpaid GST, PAYG and/or Superannuation Guarantee Charge (SGC) debt. A DPN effectively pierces the corporate veil and can result in a director of the company becoming personally liable for certain company tax debts.
Generally, the ATO will issue the DPN prior to the company entering a formal insolvency appointment. We have previously provided guidance regarding DPN’s and what options are available upon receipt of such a notice here.
What is not so well known and what we have recently been made aware of, is the ATO issuing a DPN to a director after the company was placed into liquidation and in some cases, after the liquidation has been finalised and the company deregistered.
So how can the ATO issue a DPN when the company firstly is in liquidation and/or has been deregistered? The key is whether or not the debt that exists is a “lockdown” debt.
A lockdown debt is a debt that has arisen and not reported upon by way of lodgement of the necessary returns within certain due dates. In such a situation, the director will remain personally liable for this debt of the company regardless of whether or not the company is placed into liquidation (and ultimately deregistered) or any other form of formal insolvency appointment. The relevant timeframes are:
- GST and PAYG Debts – lodging the Business Activity Statement outside of 3 months from its due date and includes any unreported GST/PAYG liability which falls outside this timeframe; and
- SGC – lodging the SGC statement after its due date and includes any unreported SGC liability which falls outside this timeframe.
Once a director becomes liable for a lockdown DPN debt, the only ways in which they can alleviate themselves of liability is to:
- Cause the company to pay its debt, this is not possible in circumstances where the company has been wound up and subsequently deregistered; or
- Pay the debt from their own personal assets.
So what is the key message from this recent activity by the ATO?
Lodge, Lodge, Lodge!!!
Accountants and professional advisors should be ensuring that their clients are lodging their tax returns on time so as to avoid any possible unforeseen consequences should their company ultimately wind up in liquidation.
If your client has received a DPN in such a situation and is concerned about their ability to repay the debt, please reach out to us as we are experienced in dealing with personal financial difficulties and can provide options via a free, no obligation meeting.
Article written by Travis Olsen (Director) – Adelaide