“The pandemic is over.”
In the surest way possible the government has indicated that the pandemic is over and it is time that individuals and companies be reminded that they are actually required to pay their taxation liabilities.
The ATO issued approximately 50,000 Director Penalty Notice Warning Letters over the past two weeks.
Change in Policy
During the pandemic the ATO’s collection activities grinded to a standstill. The ATO ceased issuing creditor’s statutory demands against companies and filing applications to wind them up. It also stopped sending Director Penalty Notices (DPNs). This policy was designed to allow individuals and businesses relief to deal with the stresses of the pandemic which crippled many industries.
The lack of collection activity had a massive flow on effect to the insolvency sector with both personal and corporate insolvencies dropping to all time lows over the past two years. According to ASIC, companies entering external administration and controller appointment throughout Australia dropped from 8,105 in 2018-2019 to 4,235 in 2020-2021.
Collecting Again
The treasurer Josh Frydenberg has recently advised the nation needs money to fund the programs outlined in the recent budget and repay the stimulus it handed out over the past two years. Businesses and individuals who have neglected their taxation obligations during the pandemic are now required to catch up quickly.
What does this mean?
It means the “party is over” from a collection standpoint. The ATO will soon ramp up its collection activities and the first indicator of the shift in policy is the Warning letters being sent out over the past months. The ATO has been sending Director Penalty Warnings – These will soon be followed by Director Penalty Notices.
Director Penalty Notice
A Director Penalty Notice is a notice issued by the ATO to a director of a corporation which can make the director personally liable for the tax owed by the Company. This has wide ranging impacts for directors and if it is not dealt with can lead to bankruptcy.
There are two types of Director Penalty Notices.
Non-Lockdown Director Penalty Notice.
The first kind of DPN is a Non-Lockdown DPN can be issued to a director of a company
which has outstanding taxation liabilities but has lodged its business activity statements
within 3 months.
The options available to a director who receives a Non-Lockdown DPN are:
- Pay the outstanding debt;
- Place the company into Liquidation or administration; or
- Appoint a small business restructuring practitioner.
In the Director Penalty Warnings we have seen there is still the option to make a payment arrangement, however, if a Non-Lockdown DPN is issued this option is removed.
Lockdown Director Penalty Notice
The second kind of DPN is a Lock-Down DPN can be issued if a company has not complied with its lodgement obligations and its BAS lodgements are more than 3 months overdue. The crucial aspect is lodgement.
If you received a Lockdown DPN you do not have an option to place the company into Liquidation, administration or appoint a small business restructuring practitioner to avoid incurring a personal liability.
Advice for Accountants
Accountants are often the first to receive notice that their client has received a DPN or a creditors statutory demand. Time is of the essence with these matters so if you receive a DPN or creditors statutory demand on behalf of your client you should notify the client by both email and phone to ensure it comes to the client’s attention.
Every case and client will be different. For example, the strategy dealing with multimillion dollar DPN for a high net worth individual with significant assets is different from advising a director with no assets.
We regularly advise accountants and their clients in relation to these issues. It is important to obtain expert advice when determining the best strategy to adopt.
If you have received a DPN or creditors statutory demand and need some advice in relation to the myriad of issues and risks do not hesitate to contact our office. Our friendly team are well equipped to provide you and your clients sound legal advice in relation to this highly specialised and technical area of the law.