January 31, 2023

Director Penalty Notices: The Risk to New Directors

Director Penalty Notices: The New Risk to Directors

Newly appointed directors have a 30 day window to deal with the company’s past tax and superannuation debts otherwise they may become personally liable for those past debts even though they had no involvement with the company at the time those debts were incurred.

All company directors should be aware of the risks they face. Amongst directors’ duties, legal obligations and statutory obligations, directors can be personally liable for their company’s tax and superannuation debts.

The Director Penalty Notice regime is a powerful tool available to the Australian Taxation Office (ATO) to hold directors liable for company tax and superannuation debts, unless the company pays those debts, or the director puts the company into an insolvency administration.

Where the tax and superannuation debts relate to late lodgements, the only way a director can avoid personal liability is for these debts to be paid by the company or through external financial support.

The ATO is presently issuing in excess of a hundred Director Penalty Notices a day.

What can a Director Penalty Notice cover? 

DPNs can cover for the following types of tax debts:

  • PAYG
  • GST from 1 April 2020
  • Luxury Car Tax from 1 April 2020
  • Wine Equalisation Tax from 1 April 2020
  • Superannuation Guarantee Charge from 1 April 2012.

Directors who agree to be appointed to a company may have little information about the company and its tax affairs prior to their appointment. This is a significant risk.

If the company has outstanding tax lodgements or unpaid tax and superannuation, the newly appointed director has 30 days from the date of their appointment to do one of the following:

  • Cause the company to pay the outstanding tax or superannuation.
  • Place the company into voluntary administration or liquidation.
  • Appoint a Small Business Restructuring Practitioner if eligible to do so.

If the new director doesn’t take any of these steps, they may become personally liable for all of the company’s outstanding tax and superannuation debts, even if the debts occurred prior to their appointment.

Resigning as a director, even within the 30 days, will not solve the problem of personal liability.

If you have received a Director Penalty Notice, urgent action is required and decisions will need to be made immediately.

Please contact our office on 9387 5637 if you require any assistance in relation to a Director Penalty Notice that you have received.

Source: CPN Bulletin

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