Among all of the changes during the past 12 months to the business landscape in Australia, a critical change for Directors’ personal liability may not have been as widely talked about as it otherwise would have.

The Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 received Royal Assent on 17 February 2020.  The Act includes changes to the current Director Penalty Notice (DPN) regime in respect to a company director’s personal liability for specific unpaid taxation liabilities. These changes became effective on 1 April 2020.

What is a DPN?

Under the director penalty regime, if a company did not meet specific taxation liabilities, the Deputy Commissioner of Taxation could see the director as personally liable to pay these debts. Prior to 1 April 2020, the taxation liabilities were limited to Pay As You Go withholding and Superannuation Guarantee Charge (SGC), however it was expanded to include Goods and Services Tax, Wine Equalisation Tax and Luxury Car Tax.

Types of DPN

There are two types of DPN: non-lockdown or lockdown, which have nothing to with COVID lockdowns.

Non-Lockdown

This is the situation where the Company has reported its BAS/SGC obligations on time. That is, the BAS has been reported within three months of the BAS lodgement date, and for SGC, superannuation has been reported within one month of the payment due date.

The options for the director under non-lockdown are:

• Pay the amount owing; or
• Place the company into Voluntary Administration or Liquidation (within 21 days).

Placing the company into Voluntary Administration or Liquidation avoids the director becoming personally liable for the debt.

Lockdown

This is the situation where the Company has not reported it’s BAS/SGC obligations on time.

The options for the director under lockdown are:

• Pay the amount owing; or
• Enter into an acceptable payment arrangement with the Australian Taxation Office (ATO).

Entering into a payment arrangement with the ATO does not assist the director in avoiding personal liability.

What should a director do if they receive a DPN?

Given the strict time limits, director’s should seek advice immediately to understand the options available to them both personally and for the company.

Contact your local Rodgers Reidy office for advice.