No C-19 Relief From Director Penalty Notices and ATO ‘Lockdown’ Liability

A Director Penalty Notice (“DPN”) is a formal notice issued by the ATO upon directors of a Company to hold them personally liable for specified tax liabilities of their company. There are 2 types of DPNs: lockdown and non-lockdown DPNs.

• A lockdown DPN is issued to directors where the company has failed to report its:
  • BAS within three months of the due date; or
  • SGC Statement by the due date;
    and the debts remain unpaid.
• A non-lockdown DPN is issued to directors where the company has reported its BAS within three months of the due date or its SGC Statement on time but the obligations remain unpaid

To help the ATO combat illegal phoenix activity, amendments effective from 1 April 2020 were made to the ATO’s DPN regime to make directors personally liable for debts, amongst others, arising from unpaid GST. Previously, DPNs were only issued for debts relating to unpaid PAYG and SGC obligations.

Unlike the moratorium introduced in March 2020 which temporarily amended or suspended a number of insolvency laws, the most significant of which was that relieving directors from insolvent trading until the end of September 2020, the DPN regime was untouched.

Accordingly, the inclusion of GST debts into the ongoing DPN regime comes at a time when many directors are already grappling with the financial and operational pressures of their businesses arising from the COVID-19 pandemic.

What if I don’t lodge the BAS?

The new amendments to the DPN regime allow the ATO to make an estimate of a company’s GST liabilities that should have been reported in the late BAS and render an assessment upon the company which will form the basis for the DNP liability.

In the event that the director is of the view that the default assessment rendered by the ATO is incorrect, the company must make a sworn statement that its net amount for the tax period is less than the ATO’s estimate and the ATO may reduce the liability.

The legislation sets out the information that must be included in the statement. However, the onus of proof lies with the company to prove that its actual liability is less than the assessment rendered.

Options once a DPN is received?

To avoid personal liability	SGC Liability	GST Liability	PAYG Liability
Statement Reported	Lodge by the due date	Lodge within 3 months of the due date	Lodge within 3 months of the due date
If reported properly (non-lockdown DPN)	Before DPN issued, or within 21 days of the date of the DPN, pay the due amount disclosed in the DPN, or appoint a liquidator or voluntary administrator to the company
If lockdown DPN issued	Pay the due amount disclosed in the DPN

It’s important to note that as the debt becoming a personal liability of its director, if the debt is not paid then it can result in the bankruptcy of the director.

If you receive a DPN, time is of the essence. Accordingly, you should promptly make contact with our office to discuss your circumstances and those of the company.