A common business structure is to operate through a privately owned company. The rationale behind this is to provide legal protection as the corporate structure protects the private assets of the individuals operating the business. However, there have been several significant legislative changes made and the ATO has started to ramp up its collection efforts as many companies have built up significant tax debts during COVID impacted periods.
A director penalty notice (DPN) can be issued by the ATO in regards to unpaid superannuation liabilities and PAYG withholding. This notice legally shifts the responsibility for the payment of the debt from the company to the directors personally and means their assets are exposed.
Here are some key points to keep in mind:
– It is crucial to lodge all tax commitments on time such as superannuation and BAS even if these cannot be paid. If you have outstanding lodgements, you need to get these up to date immediately.
– Currently, the ATO is issuing warning letters that it may issue a DPN soon on outstanding debt. This offers the opportunity for companies to enter into payment plans and communicate with the ATO on the debt.
– It is likely the ATO will begin issuing DPNs after the Federal Election.
– If a DPN is issued, it is imperative that directors act upon this notice. There are 21 days to respond and this time can be used to either pay the debt or look at bankruptcy options. Being proactive at this time rather than ignoring the notice will make a massive difference to the financial impact.
– A DPN is issued directly to directors based on their residential address shown on the ASIC register. If this address is incorrect, directors may not receive the notice and this is unfortunately not an excuse to avoid the DPN. It is also important to note these notices are going directly to directors and may not be seen by your advisors. So as soon as you receive one of these, please contact your accountant.
If you have any queries or need any assistance with this, please do not hesitate to contact us on (03)9720 6811