Company directors can incur a personal liability related to certain tax liabilities owed by their company. For example, a director can incur penalties equal to their company’s unremitted PAYG withholding liabilities and superannuation guarantee charge obligations.

During COVID the ATO took a less aggressive approach to tax liabilities which saw the tax debt of small businesses grow by over 89% in 4 years, from $26.5 billion at 30 June 2019 to $50.2 billion at 30 June 2023. The attitude of the ATO has now changed.

Improving small business tax recovery is a key focus and they are now undertaking strong and deliberate debt collection activity. They have recently issued over 17,900 director penalty notices (DPN).

A director only has 21 days from the DPN for the company to:

1. comply with its obligations;
2. have an administrator appointed;
3. have a small business restructuring practitioner appointed; or
4. begin to wind up the company.

If you receive a DPN, you need to act quickly to seek advice as to the consequences of the options available and have time to take the necessary steps, which may require meetings of directors to take place and resolutions to be passed, before the deadline expires. If at the end of the 21 days, all the necessary steps have not yet been taken, the penalty is due and you are personally liable to pay, unless very limited exceptions apply.

What to Do Next

If you have received a DPN, or if you have un-lodged or outstanding PAYG or superannuation payments, we recommend you speak with a lawyer or accountant as a matter of urgency. Failure to properly deal with a DPN or to lodge tax statements can have serious consequences to your personal solvency status. Early intervention is the best course.

Hope Earle Lawyers offer a free consultation with one of our experienced commercial lawyers to discuss your business legal requirements.