Reforms to the Director Penalty Notice Regime to now include GST

By Lucy Jukes, Law Graduate

On 1 April 2020 the Federal Government’s reforms to combat illegal phoenix activity will extend the coverage of the Director Penalty Notice (DPN) regime. The Australian Taxation Office (ATO) will extend its capacity to issue company directors with a personal liability notice for the failure to make necessary GST, PAYG and superannuation payments.

This reform of the DPN regime is part of the government’s bid to impose tougher penalties on directors who fail to meet the interests of creditors by transferring company assets to entities controlled by the same directors for little to no consideration.  Further concerns have been recently highlighted in relation to employee superannuation being underpaid or not paid at all, as well as underpayment and failure to remit the correct GST and PAYG to the ATO.

How will the new DPN regime work?

The ATO will have the power to issue a DPN against the directors of a company and impose personal liability on those directors for an amount equal to the company’s unpaid liability. 

The DPN will remain in the form of a “non-lockdown DPN” or “lockdown DPN”. The type of DPN issued will depend on whether (and when) the company lodged its BAS or Superannuation Guarantee Charge (SGC) statement with the ATO.

Failure to lodge a BAS or SCG statement within a specified time will allow the ATO to issue DPNs with estimated liabilities. 

Non-lockdown DPN

If a company lodges its BAS within 3 months of the due date, and reports the unpaid GST or PAYG, the ATO can issue a non-lockdown DPN against the directors of the company.

A non-lockdown DPN relating to SCG will be issued if the outstanding superannuation debt is reported by the SCG due date.

Personal liability can be avoided if the directors:

• Pay the outstanding debt;
• Place the company into liquidation; or
• Place the company into voluntary administration.

The DPN penalty will not apply if one of the above steps is taken within 21 days of the DPN notice date. Failure to comply within the 21 day period will result in the directors being personally liable for the penalty.

Lockdown DPN

The ATO can issue a lock down DPN against directors where a company does not lodge its BAS statement within 3 months of the time due, or its SCG statement by the due date.

The directors will only be able to avoid personal liability under a lockdown DPN if the entirety of the penalty is paid within 21 days of the DPN notice. A lockdown DPN removes a director’s ability to avoid the payment by placing the company into liquidation or voluntary administration, which is an option available under a non-lockdown DPN.

 

These reforms are an important step in the government’s objective to reduce illegal phoenix behaviour by company directors, and ensure that all creditors are correctly paid.

For more information on this article or on other Corporate matters , please contact MST Lawyers’ Corporate Advisory team by email or call +61 3 8540 0200.