What is a director penalty regime?
The director penalty regime ensures that directors cause the company to comply with certain taxation and superannuation obligations. Directors have a responsibility to ensure that the company meets its PAYG and SGC obligations.
If the director’s company has outstanding PAYG withholding or SGC obligations, the director will become personally liable for a penalty equal to these amounts under the director penalty regime. This is because a director becomes automatically liable to the penalty at the end of the day the company is due to meet its obligation.
What is a director penalty notice (DPN)?
In order to recover a director penalty, the Commissioner will issue a DPN. The Commissioner will then only be able to commence proceedings 21 days after the DPN was issued.
The ATO has the ability to issue a DPN to a director who has resigned before issuance of any notices. Newly appointed directors who have held office for a period longer than 30 days may also be issued with a DPN by the ATO.
What are the options for a director issued with a DPN?
If the unpaid amount was reported within three months of the due date, the director may within 21 days of the DPN being issued:
Pay the debt
Appoint an administrator under section 436A, 436B or 436C of the Corporations Act 2001
Appoint a liquidator to wind up the company
If the unpaid amount was not reported within three months of the due date, the director’s only option within 21 days of being issued with a DPN is to pay the amount of the debt.
What are the defences for director penalties?
A director is not liable if they are able to establish one of the following defences:
A director was not managing the company at the time the liability was incurred due to illness or another acceptable reason
A director is not liable to pay the penalty if they are able to establish that they took all reasonable steps to: make the company meet its obligation to pay or appoint an administrator or wind up the company.
In relation to SGC, a director may not be liable if they prove the company took reasonable care in trying to apply the SGC Act. Please note that this defence is not available in relation to PAYG obligations.
If you require any assistance in regards to director penalty notices, contact the team at The Quinn Group on (02) 9223 9166 or submit an online enquiry.