Director Penalty Notice (DPN) What They Are & How to Avoid Getting One
By: DPN | Dec 15, 2022Director Penalty Notices (DPN) are a big deal. They can result in some pretty hefty fines, and if you’re not careful, they can also spell the end of your company.
In short, a DPN is a notice that the Australian Taxation Office (ATO) will issue to a company director if that director has failed to meet their tax obligations. The ATO can issue DPNs for several reasons, but the most common is when a company still needs to pay its PAYG withholding tax.
This article will cover everything you need to know about Director Penalty Notices, how to prevent them and what to do if you get one.
What is a Director Penalty Notice for Unpaid Super?
A DPN is a notice served by the ATO on a company director, advising them that they are personally liable for the company’s unpaid super guarantee (SG) debts. The ATO may issue a DPN if the company has neglected or refused to pay staff super entitlements or cannot pay its tax debts when they fall due.
The ATO can recover unpaid SG debts from directors by suspending or cancelling their director’s registration. It means that directors could be banned from managing companies if they don’t take steps to rectify the situation.
What Happens When You Get a DPN
If you receive a DPN, you have a maximum of 21 days to take action. If you don’t, the ATO will start taking steps to recover the money that your company owes. Needless to say, it’s something that you want to avoid at all costs.
What to Do if You Receive a DPN
If you have received a DPN, taking action quickly is important. You should speak to a specialist such as DPN Help www.dpnhelp.com.au to discuss your options and determine the best action for your situation.
How to Respond to a DPN
If you have received a DPN, you must take action immediately to avoid further director penalties from the ATO. However, if you are struggling to deal with a DPN on your own, seek professional help to guide and support you through the process. These steps outlined below will help you respond effectively to a DPN and protect your interests as a director.
Understand the Notice
The first step is to understand what the notice is and what it means. The ATO will send you a DPN if your company has failed to pay its tax debt and make you, the director, personally liable for that debt. Once you receive the notice, you have a maximum 21 days to take action. If you do not take action, the ATO can take steps to recover the debt from you, including freezing your bank accounts and selling your assets.
Lodge an Objection
If you disagree with the ATO’s assessment of your company’s tax liability, you can object to them. An objection allows you to have your say and present evidence as to why you believe the ATO’s assessment is incorrect
Pay the Debt
If you cannot lodge an objection, or if your objection is unsuccessful, you will need to pay the outstanding tax debt. You can do this by entering into a payment plan with the ATO or paying the debt in full. If you cannot pay the debt, the ATO may allow you to sell some of your assets to raise the funds necessary, but there are other alternative options to this.
Seek Professional Help
Dealing with a DPN can be daunting and stressful. If you are struggling to deal with a DPN on your own, seek professional help.
How to Avoid Getting a DPN
If your company has fallen behind on its tax, you can take steps to avoid being served with a DPN. These steps can avoid personal liability and get your company back on track.
Speak to the ATO as Soon as You Know That the Company Is in Default
The sooner we contact the ATO, the more likely they will work with us to develop a payment plan. DPN Help can call the ATO, once authorised, on your behalf.
Make Sure All Future Tax Returns Are Lodged on Time
This will show the ATO that you’re serious about rectifying the situation and taking steps to ensure it doesn’t happen again.
Keep Up With Your Repayments
Once you’ve reached an agreement with the ATO, you must stick to it. If you miss a payment or make late payments, you’ll only make the situation worse, as you have become personally liable by entering an arrangement.
Put Systems in Place to Prevent Future Defaults
Once you’ve dealt with the current default, put systems and processes in place to ensure it doesn’t happen again. It might include appointing someone within the company to keep track of tax obligations or implementing financial reporting measures to flag any potential problems early on.
Final Thoughts
Director Penalty Notices are no joke. If you receive one, it’s important to take action immediately to avoid having your company wound up by the ATO.
The best way to avoid getting a DPN in the first place is to make sure that your company is keeping on top of its tax obligations. If you’re unsure whether your company is doing this, seek professional advice.
To discuss DPNs further, contact us today.
About DPN Help
At DPN Help, we focus on providing a fast, easy and cost-effective solution for directors who have received a Director Penalty Notice. We offer free telephone advice on possible solutions.
The Simple Steps Approach With Our Experts
- Give us a call: Get your 30 minutes free. Confidential advice. It’s obligation-free.
- We give customised advice: You can send us a scan of your letter, and we will help you understand it better.
- We will help you develop a plan: We’ll tell you the best way forward and send it to you in writing.
- We help you solve the problem: Whatever the solution, we support you every step of the way.
Frequently Asked Questions
Are Directors Personally Liable for PAYG?
The PAYG system is designed to ensure that employees are paid the correct amount of tax. Under this system, directors withhold taxes from their employee’s wages. As a result, directors must be aware of their obligations under the PAYG system. If the director does not comply with this obligation, they may be held personally liable for the unpaid taxes. This liability can extend to other company members, such as shareholders and creditors. In addition, the ATO may take action against the company itself. It could include imposing penalties or interest charges or revoking the company’s tax registration.
What Is a 21-Day Director Penalty Notice?
A 21-Day Director Penalty Notice is a notice served on company directors informing them that the company has failed to comply with its tax obligations. The directors have 21 days to take action to rectify the situation, or they will be held personally liable for the company’s tax debt. This liability can include unpaid tax, interest, and penalties. In some cases, the directors may also be subject to criminal prosecution. A 21-Day DPN is a serious matter, and directors should take immediate action to protect themselves from personal liability.
When Can a Director Be Held Personally Liable in Australia?
A company director can be held personally liable in several circumstances in Australia. It includes if the director breaches their fiduciary duties, is involved in unlimited liability companies, or if they give personal guarantees.
Are Directors Liable for Company Debts in Australia?
When a company fails, the Australian Tax Office (ATO) will often pursue directors for any unpaid company taxes, including PAYG, GST (goods and services tax) and SGC. While it is possible to negotiate with the ATO to repay these debts over time, director liability means that directors are personally responsible for repaying the full amount of any outstanding debts. This can be a significant financial burden, particularly for small businesses. As a result, directors must check for unpaid tax liabilities before taking on their role. Otherwise, they may find themselves personally liable for a large debt they cannot repay.