Director Penalty Notices

Company directors are legally responsible for ensuring that their company meets its pay as you go withholding (PAYG), superannuation guarantee charge (SGC) and goods and services tax (GST) obligations.

If a company fails to comply with their PAYG, SGC or GST obligations, company directors are held personally liable for the amount the company should have paid and the Commissioner of Taxation can issue a director penalty notice (DPN) to those directors.

There are two types of DPNs that may be issued to company directors:

Non-Lockdown DPN

The Commissioner can issue a non-lockdown notice to directors where a company has lodged the business activity statements, income activity statements or superannuation guarantee statements of the company but PAYG withholding, SGC debts and GST amounts remain unpaid.

The director penalty is remitted if the company pays the outstanding tax or the company goes into voluntary administration or liquidation within 21 days of the date the DPN is issued.

Lockdown DPN

The Commissioner can issue a lockdown notice to directors where a company has not lodged its business activity statements, income activity statements or superannuation guarantee statements by the due date.

In this case, directors become automatically liable for the unpaid PAYG withholding, SGC and GST.

If a lockdown DPN is issued, the director penalty is not remitted if the company goes into voluntary administration or liquidation.

Non-Payment of Director Penalty

After receiving a DPN, a director has 21 days repay the amount set out in the DPN.  If the director fails to pay the amount, the Commissioner is able to commence proceedings against the director personally to recover the director penalty.

Defences for Director Penalties

A director is not liable for a director penalty if they can establish that one of the defences under the legislation is available to them, i.e. that they took all reasonable steps to:

• make the company to meet its obligation to pay
• appoint an administrator
• wind the company up.

For SGC, a director may not be liable for a director penalty if they can establish that the company took reasonable care in trying to apply the Superannuation Guarantee (Administration) Act. This provision recognises that there can be some uncertainty about SGC liabilities, especially relating to employee entitlements. However, there is no corresponding defence for PAYG withholding obligations.

New Directors

A newly appointed director to an existing company has 30 days from the date of their appointment before they can be issued a DPN for any pre-existing liability. After 30 days, a newly appointed director becomes personally liable for a debt incurred prior to their appointment.

If you have been issued with a Director Penalty Notice or you need advice regarding your company’s outstanding debts, contact our team of expert commercial lawyers on (02) 9964 0499.