So What Is The Director Penalty Regime?
The Director Penalty Regime is the mechanism through which the Deputy Commissioner of Taxation (DCT) attaches personally liability to directors equal to any unpaid Pay As You Go (PAYG) and Superannuation Guarantee Charge (SGC).
Draft legislation has been proposed as part of the 2018/19 budget reforms to expand the Director Penalty Regime to include Goods and Services Tax, Luxury Car Tax and Wine Equalisation Tax. However, at the date of writing Director Penalties only apply to PAYG & SGC.
A director becomes personally liable for the unpaid PAYG and/or SGC at the end of the day the company is due meets its obligation. For the DCT to enliven their right to recover the penalty from the director, the DCT must issue the director with a Director Penalty Notice (DPN).
There exists two types of Director Penalty Notices being:
- Lockdown Director Penalty Notice; and
- Non-Lockdown Director Penalty Notice.
A Lockdown Director Penalty Notice occurs when a company fails to lodge its Business Activity Statement (BAS), Instalment Activity Statement (IAS) or Superannuation Guarantee Charge (SGC) within three months of the due date.
A Non-Lockdown Director Penalty Notice exists where a company lodges its BAS, IAS or SGC within three months of the due date but fails to pay the associated debt.
Director Penalty Notices are issued to the residential address of the director as recorded with ASIC. It is important to note as directors are often accustomed to important documents being posted to the registered office and fail to monitor their personal mail.
How Does A Director Remit Their Liability?
Directors have options to remit their liability for a DPN. The most common and effective option is to cause the company to pay the underlying obligation, unfortunately, so often this option is not be available if the business is in cash flow crisis.
A Non-Lockdown DPN can be remitted in the event a Voluntary Administrator or Liquidator is appointed to the company within twenty-one (21) days of the date of the DPN. It is important to note that the 21 days commence from the date on the DPN, not the date the mail is received or read by the director.
A Lockdown DPN can only be remitted through payment of the debt or personal insolvency of the director.
Company directors expose themselves to all manner of personal liability a salaried employee does not. Exposure to a DPN is often the swing factor that will determine whether the director can avoid personal insolvency in the event of a corporate failure.
If you would like to discuss Director Penalties please don’t hesitate to contact the team at ReGroup Solutions.