Changes to Directors Penalty Rules

Posted on Jul 17, 2012 | 0 comments

What are the changes?

From  July 1 2012, the DPN regime has been amended to allow the Commissioner to enforce personal liability on directors for withheld PAYG and unpaid superannuation.

This  means that
When a Company has outstanding  PAYG  or superannuation liabilities,  a director can be issued a DPN which gives 21 days for a director to do either of the following options to avoid personal exposure:

  1. Pay the Debt; or
  2. Appoint a Liquidator or Voluntary Administrator

The catch is, if those liabilities are unreported and unpaid for over 3 months, directors will be held personally liable for those debts and in that instance there is no way for them to avoid personal liability which will be based on an estimate of the liability!

In addition, the Commissioner has the discretion to reduce a director’s (and their associates) entitlement to PAYG withholding credits from their personal income tax returns.

What is the Process?

  1. The ATO issues a Director Penalty Notice (DPN) which prescribes that if the Company does not comply with the Notice company directors are held personally liable.
  2. Any or all directors may be issued a notice  for the full amount of the liability.
  3. At the end of the 21-day notice period, the ATO may commence legal action against directors for the unpaid PAYG and/or superannuation liabilities.

What can you do, as a director?

Directors can avoid personal liability for a DPN if the company pays its outstanding debt, or appoints a voluntary administrator or liquidator within 21 days of receiving the notice and the lodgements are up to date.

Although this is similar to the previous regime, the key difference is directors cannot escape personal liability if a debt remains unpaid and not reported for more than 3 months after the due date.

As a director make sure you

  1. At the very least get on top of your lodgements and make sure you comply with the 3 month lodgement period;
  2. Ensure PAYG and superannuation requirements are paid at least 3 months after the due date;
  3. Report your current residential address with the Australian Securities and Investments Commission (ASIC) to make sure you get the DPN if one happens to be issued;
  4. Protect your personal assets.

If you require any further information please call the Tax & Books Team at JWA on 5585 8555.

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