A company structure is often praised for its asset protection benefits, as it can shield the directors from personal responsibility for the company’s debts. We look at personal liabilty for company tax debts.
However, in recent times, directors have been increasingly exposed to personal liability for company debts, sometimes unknowingly, especially concerning unpaid and unreported liabilities owed to the Australian Taxation Office (ATO) due to the lockdown director penalty provisions (lockdown DPN).
Director Penalty Notices and a lockdown
A lockdown DPN applies when:
- a company failed to lodge its business activity statements (BAS) and instalment activity statements (IAS) within three months of the due lodgement
- superannuation guarantee charge (SGC) statements within one month and 28 days after the end of the quarter that the superannuation charge contribution relates to.
In such cases, the director’s exposure to the penalty is automatic and permanent. A director does not need to have been issued a notice (DPN) for the exposure to exist and there is no ability to remit (i.e. cancel) the penalty, other than by paying the debt in full. To avoid this exposure, directors must ensure they complete their lodgements even if unable to pay the associated liabilities.
Example.
John, a company director operates on a quarterly BAS reporting cycle and business activities during the June quarter results in a GST liability of $10,000.
Normally, the June quarter BAS lodgement is due by 28 July. However, John fails to lodge the BAS within three months (i.e. by 28 September). John becomes personally liable for the $10,000 liability, and there is no possibility of remitting this “director penalty”.
In recent months we are seeing increasing situations where company directors have let their ATO obligations go by the wayside, with many having lodgements outstanding for many months, and in some cases, years. Often it is a surprise to directors that the lockdown DPN provisions means there is personal exposure that cannot be remitted by appointing an external administrator (as in the case of non-lockdown director penalties).
Due dates
The lodgement due dates are critical; directors and advisors must now have a plan and reminder in place to ensure a company meets its lodgement dates on time. As an example, directors must ensure that they are aware of the lockdown DPN due dates for quarterly reporting, see the table below.
| Lockdown DPN due date* | |||
| Quarter | Due Date | Net GST | SGC |
| Q1 – July, August & September | 28 Oct | 28 Jan | 28 Nov |
| Q2 – October, November & December | 28 Feb | 28 May | 28 Mar |
| Q3 – January, February & March | 28 April | 28 July | 28 May |
| Q4 – April, May & June | 28 July | 28 Oct | 28 Aug |
*If a registered tax or BAS agent is used, different dates may apply.
Recovery action
After being issued a lockdown DPN—receipt is not legally required, just that it was issued—directors have 21 days to either:
- pay the corresponding penalty amounts in full
- engage with the ATO and negotiate a payment plan for the company debt.
Notably, the ATO may still offset personal tax credits against this debt.
The ATO can also recover the penalty by:
- issuing garnishee notices
- offsetting any director’s personal tax credits against the director penalties
- initiating legal recovery proceedings against the director to recover the director penalty.
If you’re concerned about a director’s exposure to a ATO debt, we are here to help and can take you through the practical solutions available.
How can we help?
If you have any questions or would like further information or you are seeking property tax advice, please feel free to contact our office via email –info@investplusaccounting.com.au or phone 02 9299 7000 to either speak with someone or arrange a time for a meeting so we can discuss your requirements in more detail. You can arrange a free 15 minute no obligation chat to discuss your options. Please arrange an appointment with our office by clicking here
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