The Australian Taxation Office (ATO) has the power to issue a Directors Penalty Notice (DPN) to company directors.

If a company fails to comply with their obligations under the PAYG withholding or superannuation guarantee systems the company directors can be held personally liable for the amounts the company should have paid. The ATO has the power to issue a Directors Penalty Notice (DPN), effectively transferring the debt from the company to the director.

A director automatically becomes liable to a penalty at the end of the day the company is due to meet its obligation. The ATO does not need to issue any notices or take any action to create the penalty. However, the ATO must not commence proceedings to recover a directors penalty until 21 days after a DPN is issued. In this case issued means the date the ATO posts the DPN, if it is sent to an old address it is still taken to be issued on the date of posting.

There are two types of Director Penalty Notices:

a) Non-lockdown DPN – these are issued to directors where the PAYG withholding or superannuation guarantee obligation has been lodged but the payment has not been made. Where a director gets a non-lockdown DPN they have 21 days to take certain actions to get the penalty cancelled, namely payment of the debt by the company or voluntary administration of the company.

b) Lockdown DPN – these are issued to directors where the company has failed to lodge or pay their obligations within three months of their due dates. In this case the director automatically becomes liable for the debts and can only be cancelled by the director personally paying the debt. Voluntary administration of the company does not extinguish the liability.

The moral of the story is make sure you keep your lodgements up to date, even if you do not have the funds to make payment.

For more information visit the ATO website or contact Patrick Rowan & Associates, Geelong Accountants.