Director Penalty Notices (DPNs) are not new. For directors unfamiliar with the regime, we have previously outlined the fundamentals in our article What Director Penalty Notices (DPNs) mean for directors. Are you liable? 

Increased Australian Taxation Office (ATO) enforcement activity, together with greater visibility of employer tax and superannuation reporting, makes now an appropriate time for directors to revisit some of the key principles. 

While the regime itself has not changed significantly, the environment in which it operates has. Directors should assume failures to lodge and report tax and superannuation obligations on time are more likely to be identified earlier and acted upon sooner than they may have been in the past. 

Most directors have heard of DPNs. What many do not appreciate is how quickly a company tax problem can become a personal liability problem.

A common misunderstanding is that a director only becomes personally liable when a DPN is issued. 

That is not correct. 

For PAYG withholding, GST and superannuation guarantee liabilities, personal liability generally arises when the company fails to pay those liabilities by the relevant due date. Whether that liability can later be remitted will often depend on whether the company's lodgement obligations were met on time. 

The significance is that a director's position is often determined well before a DPN is issued.

The distinction between a lockdown and non-lockdown DPN remains one of the most important concepts for directors to understand.  

Where a company has lodged its Business Activity Statements (BAS), Instalment Activity Statements (IAS) and superannuation reporting obligations on time, but has failed to pay the resulting liabilities, the ATO may issue a non-lockdown DPN. 

In those circumstances, there may still be steps available to avoid personal exposure to the debt. 

The position is very different where lodgements are not made on time. 

If required reporting obligations are not lodged within the prescribed statutory periods, the ATO may issue a lockdown DPN. In those circumstances, appointing an administrator, restructuring practitioner or liquidator will generally not remove the director's personal liability. 

Directors often focus on whether the company can pay its tax liabilities. In the DPN context, timely lodgement is just as important. 

A company may survive temporary cash flow difficulties. A failure to lodge BAS, IAS or superannuation obligations within the required timeframes can permanently remove options that would otherwise have been available. 

For that reason, one of the most effective ways to reduce DPN risk is to ensure reporting obligations are lodged on time, even where payment cannot immediately be made. 

Recent developments have given the ATO greater visibility of employer reporting compliance. 

Single Touch Payroll reporting provides the ATO with more frequent payroll information. More recently, Payday Super has increased visibility of superannuation compliance by requiring employers to deal with superannuation obligations closer to the time employees are paid. 

These developments have not altered the operation of the DPN regime itself. They have, however, made it easier for the ATO to identify failures to meet reporting and lodgement obligations and act sooner.

A DPN should never be ignored. 

By the time a DPN is issued, the options available to a director may already have been influenced by decisions made months earlier. Whether the company's lodgement and reporting obligations were met on time may ultimately determine the consequences of the notice. 

Directors who receive a DPN should obtain immediate legal and accounting advice to determine the nature of the liability, whether the notice is lockdown or non-lockdown, and what options remain available. 

The DPN regime has not changed significantly. What has changed is the ATO's visibility of employer reporting and lodgement compliance, making failures to lodge on time harder to avoid. 

For directors, the lesson remains straightforward: lodge on time. 

The distinction between a lockdown and non-lockdown DPN may ultimately determine whether personal liability can be avoided. 

To discuss the implications of a Director Penalty Notice, unpaid tax or superannuation liabilities, or potential personal liability as a director, contact our Restructuring & Insolvency team.