07/04/2020 by Pascoe Partners Accountants
A Director Penalty Notice has always been a matter to be taken seriously, with potentially major consequences for company directors.
However, new ATO laws mean that your risks and responsibilities as the director of a company have just been taken up a notch.
Laws have just been passed that allow the ATO to use a Director Penalty Notice to collect outstanding GST liabilities.
The Tax Office can now collect any tax owing by a company from any director personally by issuing a Director Penalty Notice.
It has absolute discretion on who it levies one of these notices against and ATO officers are smart in how they use them.
They hold a lot of information about individuals through the lodgement of income tax returns and information exchanges from financial institutions.
They know that there is no point in using a Director Penalty Notice against an individual who does not have the financial capacity to repay a debt.
Accordingly, they will lodge it against a director who they believe has the financial capacity to meet the debt obligation.
The first thing to do if you get issued a Director Penalty Notice is to check that the debt is still outstanding.
Sometimes there is a delay between when the debt is paid and when it is processed at the Tax Office.
If the debt is still outstanding, is the company in a position to make a payment or has there been some error that requires an amendment to rectify it?
At this stage, if the debt is true, it is worthwhile contacting the ATO to enter into a payment arrangement.
We have found that the Tax Office is accommodating with payment arrangements. They would rather collect the funds this way than follow through on liquidation arrangements.
Once the company enters a payment arrangement, all other obligations, payments, and lodgements have to be made by the due date or the arrangement becomes invalid and the balance of the debt is due immediately.
Finally, if you personally have to pay the outstanding tax, you can collect it back from the company provided it is not insolvent (which comes with a host of other problems for directors).
As a director of a company, you and your assets are exposed to the debts of the company not only through Director Penalty Notices but also directors’ guarantees.
It is best that if you take on the duty of a director as few assets as possible are put at risk. Always give careful consideration before accepting the role of a company director.
If you receive a Director Penalty Notice and need assistance, please contact our office for advice on the options available to you.