Director Penalty Notices

What is a Director Penalty Notice?

Under certain circumstances, the Australian Taxation Office (ATO) can force the directors of a company which is unwilling or unable to meet certain tax and other obligations, to personally pay those debts. This is achieved with the issuance of a Director Penalty Notice. Those obligations include PAYG (Withholding) Tax, and unpaid employee superannuation entitlements. You should know that a Director Penalty Notice can be equally issued to Shadow or de facto directors.

The laws governing the Director Penalty Notice regime were strengthened significantly in June, 2012. The net result of this is, it is easier for directors to become personally liable for the debts of a company. The ATO commences the processes of recovering money owed by a company, from its directors, by issuing a Director Penalty Notice. There are two types of Director Penalty Notices that you need to know about.

1. Non-Lockdown Directors Penalty Notices

The first type is the “non-lockdown” Directors Penalty Notice. Non-lockdown notices are issued to company directors that have lodged its Business Activity Statements or Instalment Activity Statements, but the debts remain unpaid. The notice gives directors 21 days to take certain actions (covered later in this guide) which results in the penalty being “remitted” i.e. cancelled.

2. Lockdown Directors Penalty Notices

The second type is “lockdown” Directors Penalty Notice (also referred to as the three-month lockdown provision). Lockdown notices are issued to company directors where a company has failed to lodge its Business Activity Statements or Instalment Activity Statements within three months of their due lodgement date. In this case, directors become automatically liable for the debts to the ATO.

What Action can the ATO Take?

The Australian Taxation Office is not your standard creditor, and enjoys wide powers to recover debts that other creditors simply do not. Here are some sobering facts that you need to consider;

Garnishee Notices (section 260-5, Tax Administration Act)

The Australian Taxation Office (ATO) has the power to issue a Garnishee Notice to any third party that owes or holds (e.g. the company’s bank) any money on behalf of the company. A Garnishee Notice requires the third party to pay money directly to the ATO.