Legislation has recently been passed to include GST liabilities under the Director Penalty Notice (DPN) Regime. These changes will come into effect from 1 April 2020.
What is the Director Penalty Notice (DPN) Regime?
A DPN is a Notice that the ATO can issue to a Director of a Company that makes the Director personally liable for the associated tax debts. If a Director is issued with a DPN the options to address the DPN are:
- For the Company to arrange payment of the amount outstanding. The payment arrangement setup must encompass the entire debt.
- Appointing an administrator under section 436A, 436B or 436C of the Corporations Act
- For the company to begin winding up (within the definition set out in the Corporations Act 2001)
Until recently only PAYG Withholding and Superannuation Guarantee Charge (SGC) liabilities were part of the regime but moving forward the ATO will have the ability to recover GST under the regime. It is understood that the extension of the DPN to GST will only relate to GST debts incurred from 1 April 2020.
It’s important to acknowledge that the inclusion of GST into the DPN regime means that it will also be included under the lockdown rule. The lockdown rule works by way of enforcing amounts payable if they have been reported (lodged with the ATO) more than 3 months after the due date or not at all. In this situation, regardless of the steps taken to put a company into administration or liquidation, the DPN will stand exposing the Director/s personally to any debts owing under the DPN.
In considering the lockdown rule, it is imperative that lodgements for PAYG Withholding, SGC and now GST are made on time, regardless of a company’s ability to pay any debts owing.
The inclusion of GST into the DPN regime is a sign of what is to come with a number of other taxes likely to join the list over time. What is clear is that the corporate veil is becoming a thing of the past with instruments such as this in place to hold individual directors personally liable for a company’s debts.
So what can you do about these changes to minimize your exposure?
The best approach is to avoid a DPN being issued altogether. This means staying on top of your tax debts by managing your cashflow and being proactive should issues arise as opposed to waiting for the ATO to chase you. It also means ensuring you lodge all of your obligations on time, regardless of whether you have the ability to pay them.
If you would like more information on this topic or assistance with putting cashflow management and reporting strategies in place to keep you ahead of your tax obligations, contact our Davidsons team member or call us on 03 52216399 to be put in contact with a specialist that can help.
Disclaimer: this information is of a general nature and should not be viewed as representing financial advice. Users of this information are encouraged to seek further advice if they are unclear as to the meaning of anything contained in this article. Davidsons accepts no responsibility for any loss suffered as a result of any party using or relying on this article.