Director Penalty Notices (DPN): Coverage to be extended
Whilst Director Penalty Notices (DPN) have been around for some time, protecting employees by ensuring the payments due to be remitted on their behalf are made, recent legislation changes have extended the DPN regime to include unpaid GST.
What is it?
Under the Pay As You Go (PAYG) Withholding system, the Income Tax Assessment Act 1997 (ITAA) requires companies to withhold and remit money from wages to the Australian Taxation Office (ATO) to meet employees tax liabilities. Equally, under the Superannuation Guarantee (Administration) Act 1992 (SGA Act) companies are obligated to pay Superannuation Guarantee amounts for their employees.
Company Directors are legally responsible for ensuring that their company meets these payment obligations on behalf of their workers. If no, then they may be held personally liable for the amounts that the company should have paid.
A DPN is a formal notification issued by the ATO, to the Directors of companies registered under the Corporations Act 2001, when these lodgements and payments are not made.
What has changed?
Laws governing the DPN regime were significantly strengthened in June 2012, making it easier for the ATO to enforce these personal liabilities on Directors for employee related payments.
On 5th February 2020, the Federal Government passed legislation which has provided the ATO the power to issue DPN’s for unpaid GST and certain other Company taxes, extending the reach from simply protecting employee entitlements. The changes have not yet received Royal Assent, however this is expected to be granted soon.
When does this happen?
Provisions relating to GST Director Penalty Notices will commence the Quarter after the legislation receives Royal Assent, meaning they will likely apply from 1 April 2020.
The provisions are not retrospective, meaning that directors can only be liable for unpaid GST incurred from 1 April 2020 onwards.
Be aware of your obligations
As a Director your responsibility under the Company may have significant financial impacts personally.
There are timing issues in relation to the Company obligations, lodgements and payments, and there is a very real possibility that the liability may be enforced even if the Company is placed into Administration or Liquidation.
Equally, ceasing to be a Director provides no exemption to the debts incurred by the Company being recovered from you.
If you have concerns in this area or would simply like to know more information on how it may apply to your trading situation, please do not hesitate to contact us early, so we can look at your circumstances more specifically and provide guidance.
As always, if you have any other concerns or queries in relation to this or any other tax, compliance or financial matter, please do not hesitate to contact one of the Cordner Advisory team on (07) 5504 5700 so we can discuss the matter and solutions with you.