What should I do if I am a Director of a Company and I receive a Director Penalty Notice issued by the Australian Tax Office.

A company director is responsible for ensuring that the company’s PAYG Withholding (PAYGW), Goods and Services Tax (GST) and Superannuation obligations are reported and paid on time.

If a company does not pay certain tax liabilities by the due date and reported to the Australian Taxation Office (ATO) on time, the ATO can recover these amounts from a director personally as a current director or former company director of a Company.

What is a Director Penalty?

A penalty is imposed by the ATO on a company director if certain company tax liabilities remain unpaid.  A company director may become personally liable by way of a penalty for a company’s unpaid amounts of:

1. PAYGW
2. GST – from 1 April 2020
3. Super guarantee charge (SGC).

These company tax debts amounts that a director are personally liable for are called director penalties.

The ATO can recover the penalty amounts from a director if the ATO issue to the director a director penalty notice (DPN).

DPN – Estimates

If the company fails to report PAYGW, GST or Superannuation Guarantee Charge (SGC) obligations by the due date, the ATO may also make a reasonable estimate in a DPN of the unpaid and overdue PAYGW, GST and SGC amounts.

However, and in certain circumstances, if a company has lodged certain PAYGW, GST or SGC obligations on time and prior to the reporting date, when a director receives a DPN, there may be opportunities to restructure the company’s business if specialist insolvency advice is sought.

In September 2023, and in an ATO speech, the ATO stated that since July 2022, over 24,000 DPN have been issued by the ATO to company directors in respect of 18,000 companies.

In the year ended 30 June 2023, the ATO have also issued close to 19,000 Disclose Notices to clients who fit the criteria for disclosure of business tax debts to credit agencies which may occur in circumstances where a taxpayer owes more than A$100k tax debt and where the business tax debt is overdue by more than 90 days (refer Taxation Administration (Tax Debt Information Disclosure) Declaration 2019 (Cth).  In this period, the ATO said one in 3 taxpayers subsequently took action to engage with the ATO.  Of some A$5 billion outstanding business tax debt, the ATO state some 2,000 taxpayer have paid their debts in full and being approximate A$500 million of business tax debt collected by the ATO involving the above compliance actions.