The Australian Tax Office (ATO) launched its debt recovery process in March 2022 by sending Director Penalty Notices to firm directors who had not met or disclosed their tax obligations. The ATO issues Director Penalty Notices (DPN) to company directors to collect debts. This covers any underpaid, unreported, or fraudulently reported contributions and debts. These are some of the most common indications that a business is in danger of going bankrupt. Here’s a Guide to Director Penalty Notice to foresee what’s coming for you and what’s best for you.

Why would the ATO send me a Director Penalty Notice?

The ATO issues a Director Penalty Notice. A Director Penalty Notice may be issued to any taxpayer who is not making a concerted effort to resolve their unpaid tax obligations and overdue lodgements with the ATO.

If the business is unwilling to cooperate with the ATO to find a solution, the ATO can send a Director Penalty Notice. If directors have not followed through on the agreed-upon payment schedules they made with the ATO or have simply done nothing to pay off the company’s tax burden; they may be given a DPN.

What are the various kinds of director penalty notices?

24-Hour DPN

The DPN, as the name implies, provides company directors with 21 days to act in compliance with tax payments owed. It is the most typical sort of DPN issued, and directors can protect themselves from personal liability by taking any of the following actions:

  • Make sure the business settles the debt by the specified deadline.
  • Set up a payment plan with ATO to repay the obligation.
  • Put the business under voluntary administration.
  • Put the company into liquidation.

It is crucial to remember that the 21-day window starts on the issue date—not the day the DPN was received—as mentioned in the document. The ATO may take legal action against directors individually if they don’t comply.

DPN lockdown

The ATO has just begun issuing lockdown director penalty notices. They are given to directors whenever a company doesn’t meet the requirements for lodgement. The term “lockdown” refers to a DPN’s penalty that can only be satisfied by full debt payment.

To whom does a Director’s Penalty Notice apply?

The ATO will send a director penalty notice to each company’s directors. A director penalty notice may also be issued in specific circumstances to a former director who served as a director when the business generated the tax obligation.

How can you prevent getting a Director’s Penalty Notice?

Developing good habits is the simplest way to prevent receiving a Director Penalty Notice. This will guarantee that the business pays its tax obligations on time, preventing notices from being issued.

  • Financial Position: As a director, you must constantly be informed about the company’s financial status. If your business is struggling to meet its financial obligations, it’s possible that tax obligations aren’t being fulfilled by the deadline.
  • Tax Commitments: This includes keeping an eye on GST and PAYG withholding. Directors should also make sure that paperwork like the quarterly BAS and IAS is submitted on schedule.
  • Company Information: The ATO must constantly have the most current information about the company, including its address and contact information. This is essential since the justification for not receiving a warning is unacceptable.
  • Be Proactive: If a director notices that the business cannot meet financial obligations such as PAYG withholding, it is their responsibility to take action, including hiring experienced business advisory services.

We at CRS Insolvency Services Australia specialize in assisting under challenging circumstances, such as Director Penalty Notices. Call us at 1800 210 073 to learn more about personal and corporate insolvency.