A director of a company that has a tax debt to the ATO may be served with a Director Penalty Notice. The ATO will serve this notice to the director of a company that has overdue PAYG amounts. The aim of a Director Penalty Notice is to make the director personally liable for their company’s unpaid tax debt; as such it will be delivered to the director’s home address instead of the business.
The ATO allows the company 21 days to remit the penalty before they commence recovery proceedings; this is not negotiable and starts from the date the notice was posted, rather than the date it was received by the recipient. The ATO gets the directors personal details from ASIC; therefore if a director has failed to keep ASIC informed if they change addresses, they will have no defence to avoid personal liability, if they receive the notice after the 21 days has expired. The court also has no power to grant relief to a director from their obligations in respect to a Director Penalty Notice.
In order for a director to rely on the defence of “illness or other good reason,” the director must establish that he or she was ill, or that there was a good reason why he or she did not participate in the management of the company while the relevant tax liability fell due. On top of this, the director is required to also establish that it would have been unreasonable to expect him or her to have taken part in the management of the company at that time.
What to Do
To avoid personal liability, the recipient of the Director Penalty Notice must do one of the following within 21 days of the notice being issued.
• Comply with the obligation to pay the relevant tax liability in full.
• Appoint a voluntary administrator.
• Appoint a liquidator and begin to wind up the company.
Many companies that are in debt to the ATO and foresee a director penalty notice in the future, choose to appoint a voluntary administrator or liquidator. This is so the ATO cannot issue the director of that company a Director Penalty Notice. Some directors choose to do this to their companies in order to protect their personal assets, which can be seized if he or she becomes personally liable.
The Director Penalty Notice clearly states the dollar amount of the tax debt owed by the director’s company. If you are a director it is important to be aware that if you receive a Director Penalty Notice and do not undertake one of the three options within the 21 days allocated, you can become personally liable for the tax debt of the company. What this essentially means is that the ATO can then commence action against you rather than the company to collect the outstanding debt.
If your business has a tax debt or you have received a Director Penalty Notice it is vital that you seek professional advice and quickly! There can be significant ramifications for not complying with the ATO’s notice, this can include losing personal assets such as cars, property or shares. Here at The Quinn Group our team of tax lawyers and accountants are experienced in dealing with the ATO and tax debt issues. For more information on Director Penalty Notices or about other tax debts submit an online enquiry. Alternatively, call us on 1300 QUINNS (1300 784 667) or on +61 2 9223 9166.
