DIRECTOR PENALTY NOTICES:

IT JUST GETS WORSE

We have regularly advised clients about the Australian Tax Office's powerful tools to assist the taxman in collecting revenue.

One particularly draconian measure is the "Director Penalty Notice" (DPN).

A DPN is a notice issued to a Director (or Directors) of a Company requiring the Director to procure the payment of certain taxation liabilities, most notably PAYG deductions, within 21 days. If the Director fails to pay the amount listed on the DPN within 21 days from the date of the DPN, or procure the appointment of a liquidator or administrator to the Company, the Director will be liable for a penalty equal to the unpaid tax stated on the DPN. The Commissioner of Taxation can then commence proceedings against the Director in a court of competent jurisdiction, to recover the penalty.

SO HOW CAN THAT GET WORSE?

In the recent May 2011 Budget, the Government announced some changes to the regime, which will apply from 1 July 2011.

Directors of all tax-paying entities should pay attention to the following developments:

1.     DPNs will now apply to the Company's unpaid superannuation guarantee amounts so that Directors may become personally liable for those amounts;

2.     Directors and their associates cannot claim the benefit of tax withheld credits in their individual tax returns, where the Company has failed to remit PAYG withholding amounts to the ATO; and

3.     The Commissioner of Taxation may commence proceedings to recover from a Director certain taxes payable by the Company, where those taxes have remained unpaid and unreported for 3 months, without giving the Director 21 days notice in the form of a DPN.

Whether or not these new measures will achieve the Government's stated aim of reducing phoenix activity will be revealed over time. What is certain now is that the "Corporate Veil" has been further pierced and the personal liability of Directors for the tax debts of their Companies has become further entrenched. The Commissioner of Taxation, unlike all other creditors, continues to enjoy a ratchet-ing up of his special powers to recover debts.

WHAT YOU NEED TO DO

If your Company has failed to remit monies to the ATO or has or unpaid superannuation guarantee obligations, you must take advice on how to normalise your affairs, prior to any enforcement action commenced by the ATO. You must, firstly, understand the severity of your problem, so that you can, secondly, create an informed strategy to deal with these issues.

FOR MORE INFORMATION

For information in relation to Director Penalty Notices or insolvency and corporations law generally, then please contact Chris Burns or Peter Rule on 5439 1600 or email support@completebusiness.com.au

Acknowledgments: Redchip Lawyers