Here is an explainer, as shared by a Legal Affairs Business Lawyer.

What is a Director Penalty Notice (DPN)?

A director penalty notice is issued by the Australian Taxation Office (ATO) to the director of a business that has failed to pay its tax bill (usually three months or more after the due date) or has not filled out the business’ Business Activity Statement (BAS) on time.

The DPN will tell the business director how much is owed and provide available payment options or other methods to resolve the matter.

It will also outline a new timeline for making repayments. Generally, it will present you with one of two conditions:

• A lockdown DPN: This will make you, as the Director, immediately financially responsible for repayment.
• A set time period to repay: In this instance, the most common time period is 21 days to make the relevant repayments.

What makes a DPN different and extremely important for company directors to know about is that it makes the director directly responsible for tax liabilities. That means that you, as the director, have to find the money or you will face consequences. The notice is arranged this way to ensure that company directors don’t simply dissolve companies to avoid tax debts.

You should also take note that a DPN is valid from the time it is delivered to either the registered business address of your company or your residential address. If you have recently moved, it makes no difference, the date it arrives at your previous address still stands.

Even if you are a former director and have left the company with the overdue tax debt, you could still be liable for the repayments. As a new director who has been in the role for more than 30 days, you may also be held personally responsible for unpaid tax money.

How to deal with a DPN

If you have received a DPN, don’t panic. There are still ways to resolve it.

The first and most obvious is to pay the debt in full, straight away. Maybe you just didn’t get around to paying the bill, or it got lost in a pile of paperwork. Pay it off ASAP and you can move on.

If it’s not feasible to pay the whole bill in one go, contact the ATO right away or ask your Legal Affairs business lawyer to do so on your behalf. More often than not, the tax office will allow you to pay the bill over time using an instalment plan. But before you do, you must get expert advice. If you enter a payment plan, your personal liability does not go away and there will be serious consequences if you chose this path and can’t meet the payment obligations.

Your other options are to:

• Put your company into administration or liquidation
• Work with a professional to restructure your business.
• Present the ATO with a valid reason for late payment

If you can convince the ATO that you had legitimate reasons for failing to pay, like serious illness or some other unavoidable issue, they might relax the DPN. You will still need to pay the money owed at some stage, though.

If you don’t take any of the steps above, you will become personally liable to repay the amount owed in full, and unfortunately, time is not on your side.

When it comes to DPNs, prevention is always better than cure. If you have a good accountant and bookkeeper, they should be able to help you ensure your tax-relevant payments are up to date.

What to do if you receive a DPN

The most important thing to do if you receive a DPN is to act quickly.

Get your paperwork in order as much as you can, then contact your Legal Affairs business lawyer and accountant as soon as possible. They will sit down with you to help work out the most suitable solution.

Need to know more about DPNs? Contact a Legal Affairs business lawyer today.

Disclaimer: The information contained in this news post is general in nature and is intended to provide a general summary only and should not be relied on as a substitute for legal advice. Whilst the information is considered to be true and correct at the date of publication, changes in circumstances after the time of publication may impact upon the accuracy of the information.

However, starting and operating a business can be complicated. Many people find they have bitten off more than they can chew, especially when it comes to paying taxes.

If you are behind on tax obligations such as filing your BAS, paying GST, paying your staff super and handing over PAYG tax, things can catch up with you pretty quickly. What many business owners don’t realise is that the Australian Tax Office has the option to recover unpaid tax dollars from you personally.

The ATO will start the process to recover money owed by sending you a Director Penalty Notice.

What is a Director Penalty Notice?

A Director Penalty Notice (DPN) is a notice from the ATO that is sent to the director if a business has overdue tax bills (usually around three months after the due date has come and gone), or if Business Activity Statements (BAS) have not been filed on time.

The notice will outline the unpaid amounts and explain the options available to resolve the matter.

The DPN will have a date on it and will outline how long you have to pay the money. It may make you immediately personally liable (this is known as a lockdown DPN) or give you a set time period (usually 21 days) to satisfy the requirements of the notice before you become personally liable.

It’s worth noting that a Director Penalty Notice will be valid from the date of delivery to your registered business or residential address, even if you have recently moved.

You can still receive a DPN if you have left your position as director of a company. An incoming director who has been in the role for more than 30 days may also receive this type of notice.

One of the reasons DPNs exist is to prevent company directors from failing to meet their tax payment and reporting obligations, then dissolving the company and walking away without being personally liable.

What to do if you receive a DPN

If one of these notices makes its way to you, generally your options include the following:

• Pay off the debt in full
• Pay off the debt in instalments within the allocated time frame
• Put the company into administration or liquidation so you can find a way to recover the unpaid money
• Work with a specialist to restructure your business
• Share a valid defence that explains why you should not be liable for the business’s tax debts

If you fail to do any of the above, the amounts the business owes will fall to you personally to repay.

Of course, the easiest solution is to complete your reporting obligations and pay off your debts. If the DPN has been issued because you lost track of time and didn’t pay your bills, you could quickly resolve it by transferring the funds to the ATO. You can work with your accountant and bookkeeper to find the money, or potentially borrow funds to cover the costs, if you are certain you can handle the additional debt.

It gets more complicated when the money is not available to pay off the amounts owing. This is when you will need the help of a legal professional who will either:

• Help you to put your company into administration
• Help with a restructure so you can pay your debts
• Help you confirm that you did in fact take reasonable steps to avoid the situation
• Help you confirm that the reason for not lodging or failing to pay was due to illness or other unavoidable circumstances

Get support to resolve your DPN

The last thing you want is to be personally liable for your business’s GST, superannuation and PAYG debts as it can result in bankruptcy and a great deal of stress for your family.

Once you receive a DPN, you need to take action very quickly. Those 21 days can go very quickly and result in additional problems such as the ATO commencing court proceedings against you to recover the money.

One of the best things to do is immediately call a lawyer who specialises in areas including business, restructuring, bankruptcy and insolvency. This professional will be able to help you figure out the best way forward.

Before you get in touch with your lawyer, do your best to find records of your company’s recent tax payments and evidence of your current financial position. Then you can work together to resolve the situation.

Need help to resolve a Director Penalty Notice? If you’re on the Legal Affairs , contact Legal Affairs Lounge today.