Three months from when?
Many readers will be aware of the director penalty regime, and how the ATO can use these provisions to force directors of a company to personally pay outstanding PAYG withholding and SGC.
A director becomes liable to a penalty at the end of the day the company is due to meet its obligation. At this time, the penalty is created automatically. The ATO does not need to issue any notices or take any action to create the penalty. The Commissioner, however, must not commence proceedings to recover a director penalty until 21 days after a director penalty notice (“DPN”) is issued to a director.
There are two types of DPNs: non-lockdown DPN, and lockdown DPN.
Non-lockdown DPNs are issued to company directors that have lodged its business activity statements, instalment activity statements and/or superannuation guarantee statements within three months of the due date for lodgment, but the PAYG withholding and/or SGC debts remain unpaid. The notice gives directors 21 days to take certain actions (limited to either paying the debt or causing the company to be placed into voluntary administration or liquidation within 21 days), which results in the penalty being ‘remitted’ i.e. cancelled.
Lockdown DPNs are issued to company directors where a company has failed to lodge its business activity statements, instalment activity statements and/or superannuation guarantee statements within three months of their due date for lodgement. In this case, the penalty permanently locks down on the director and there is no ability to remit (i.e. cancel) the penalty, other than by paying the debt in full.
Let’s use an example of a first quarter BAS (1 July to 30 September) that is due on 28 October. If you fail to lodge the BAS (that reports PAYG withheld) within three months from this due date (i.e. by 28 January), then the lockdown DPN will take effect. In this case there is no ability to remit (i.e. cancel) the penalty, other than by paying the debt in full. Placing the company into voluntary administration or liquidation will not extinguish this personal liability.
What is interesting to note is that tax agents are allowed an extra month to lodge a BAS electronically. So, for directors that use a tax agent to lodge their BAS, they have the benefit of an extra month before the three-month lockdown DPN period starts ticking over.
The ATO can also vary the due date for the lodgement of a BAS when lodged through the BAS Agent portal. In these circumstances where there is a concessional due date for BAS lodgement, the three-month lockdown provision applies from that concessional date, not from the original BAS lodgement due date. For example, if the ATO grants a tax agent until 25 August to lodge the fourth quarter BAS (1 April to 30 June), then the three months expires on 25 November.
The message for advisors is to share the importance of these dates with your clients and plan accordingly. If your client receives a DPN, contact your local Worrells Partner who can provide guidance and advice on the available options.
Readers might also be surprised to learn that the Federal Budget Report includes a proposal to extend the DPN regime to other tax obligations, as outlined in our article: Federal Budget, illegal phoenixing, and director’s increased personal liability.
For more information on the Director Penalty Notice regime, go to our website factsheet (click here) that covers:
- payment by directors, and associates
- recovering withheld amounts
- estimates and director penalty notices
- recovering and remitting director penalties
- previous directors
- new directors
- right of indemnity and contribution.