As of 1 April 2020, changes to the Director Penalty Notice Regime will take effect. These changes will increase the personal liability of directors in the case of company debt. If you’re a company director, you probably want to read on to find out what the changes are and how they will affect you.
Director Penalty Notice (DPN)
If you are the director of a company, you can be held personally liable for some company debts, but not all. Prior to the upcoming changes, directors were only personally liable for Pay As You Go (PAYG) debts and Superannuation Guarantee (SG) debts.
If a company has such debts, the ATO must give the director(s) a DPN before recovering penalties from the director(s) personally. A DPN is, therefore, a notice detailing the unpaid amounts and remission options.
Lockdown and non-lockdown DPN’s
A non-lockdown DPN will be issued to the director(s) of a company if they have lodged their business activity statements, instalment activity statements and/or superannuation guarantee statements, but still have outstanding PAYG and/or SG debts, within three months of the deadline in the case of PAYG debts and 28 days of the deadline for SG debts.
If a director is issued with a non-lockdown DPN, they have three options:
- Pay the debt;
- Appoint an administrator; or
- Wind up the company.
A lockdown DPN will be issued if the company has failed to lodge its business activity statements, instalment activity statements and/or superannuation guarantee statements within three months of their due date in the case of PAYG debts and 28 days of the due date in the case of SG debts.
If a lockdown DPN is issued, the only option for the director(s) is to pay the debt.
The rules surrounding lockdown and non-lockdown DPN’s are not changing.
So, what is changing?
As we’ve just established, directors of companies can be held personally liable for PAYG and SG debts – that won’t change. The change is that the scope of company debts a director can be held personally liable for will expand.
Goods and Services Tax (GST), Wine Equalisation Tax (WET) and Luxury Car Tax (LCT) will all be included in the DPN regime once we reach April. The laws will be prospective, as opposed to retrospective, meaning directors will only be held personally liable for debts of this nature as of 1 April 2020 and not before.
Implications
The upcoming changes to the law mean that a director’s personal liability for company debts will be extended. Personal liability means that if the company is in debt and unable to repay, the director(s) will become personally responsible for paying the debt.
If you’re a director of a company and want to know more about the changes coming in April, please do not hesitate to contact Lynn & Brown Lawyers for expert commercial law advice.
Recommendations
Directors will need to be constantly on top of their company’s taxation liabilities. If they are not going to be paid on time they will need to be either:
- Source a loan;
- Negotiate a time to pay with the ATO; or
- Seek insolvency relief
Directors should seek asset protection advice from their lawyers. Personal assets should not be held in a director’s name.
If you are a director, you should seek advice on ways to protect your personal assets if your company falls on hard times. Lynn and Brown Lawyers have expertise in this area of commercial law. Contact us today to arrange for an initial consultation.
About the authors:
This article has been co-authored by Chelsea McNeill and Steven Brown at Lynn & Brown Lawyers. Chelsea is in her fifth year of studying Law at Murdoch University. Steven is a Perth lawyer and director, and has over 20 years’ experience in legal practice and practices in commercial law, dispute resolution and estate planning.
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