Directors Penalty Notices – unforeseen personal liability
Tax laws are constantly evolving, and a recent change to the rules regarding Director’s Penalty Notices (‘DPNs’) has the potential to trip up company directors who have outstanding Superannuation Guarantee Charge (‘SGC’) liabilities.
Director’s Penalty Notices (‘DPNs’) were amongst the more fearsome of tools wielded by the ATO, and they have recently been made more onerous due to changes included in new legislation as part of the ATO’s push towards Single Touch Payroll (‘STP’) reporting.
The two types of DPNs, dubbed ‘lockdown’ and ‘non-lockdown’, previously differed by the time frame by which the ATO was alerted to the existence of a shortfall in Superannuation Guarantee Charge payments. If an unpaid SGC debt was reported to the ATO within three months of the original due date, a non-lockdown DPN would be issued, and the SGC could be remitted without penalties being issued on the directors personally by exercising one of three options:
- Paying the debt;
- Appointing an administrator; or
- Beginning to wind the company up.
If one of the above options is exercised, the debt remains with the company and directors avoid personal liability.
If, however, the ATO was alerted to unpaid SGC after three months of the due date, then a ‘lockdown’ notice is issued on the directors, making them immediately and personally liable for the outstanding debt. The only way to remit a lockdown notice is by paying the debt.
However, the changes that became effective on 1 April 2019 removed the three month window to avoid personal liability for SGC debts. Now, if an SGC liability is not remitted by the due date, which is within 28 days of the end of each quarter and is available on the ATO website, an automatic personal liability for a director is created.
Of note is that these changes only affect SGC liabilities and not PAYG debts. PAYG debts retain the three month window from the due date before a lockdown notice is issued and directors become personally liable.