As we all know the ATO became all warm and gooey during Covid. But a leopard cannot change it spots and so there is an expectation that the ATO is likely to return to its cold self.
Small businesses owe a lot of debt to the ATO. Some estimate that $15Bn is overdue so we are expecting the ATO to turn a few screws. I am not expecting water torture or sleep deprivation just yet but don’t be surprised if there are a few cases of heavy-handedness to prove a point.
The ATO has already started. They have issued warnings to thousands of company directors about debt and explaining that directors can be personally liable for company debt.
The ATO’s activities can now include disclosing debts to credit bureaus and they have stated they will start issuing company directors with a Director Penalty Notice (DPN).
A DPN means company directors may become personally liable for company tax obligations, including superannuation, PAYG withholding and GST.
Before recovering any director penalties, the ATO must first issue a DPN. There are two types of DPNs as shown below.
|Lodgement status||Debt||Options for Directors|
|DPN for debt outside lockdown|
|Business Activity Statements are lodged within three months of the due date.
Superannuation Guarantee Charges (SGC) are lodged within one month and 28 days after the end of the quarter.
|Debt unpaid||Directors may undertake one of the following actions within 21 days of receiving the notice.
1. Pay the company’s debt to the ATO in full.
|DPN for Debt during lockdown|
|Business Activity Statements and SGC have not been lodged within the relevant timeframes.||Debt unpaid||Pay the penalty in full within 21 days of receiving the notice or rely on a statutory defence.|
To show the ATO mean business they have become a bit mean.
You see under a DPN for debt outside lockdown, a company could previously enter a payment plan to avoid a director penalty. That has now changed. Directors may be held personally liable for any outstanding liabilities of the company regardless of whether the company has negotiated a payment plan or not.
This to us is a bit harsh because the only option for a director is to either pay the debt or put the company into liquidation or to restructure. Both of which are crappy options.