As a director, one of the most important notices you need to look for is a Directors Penalty Notice which is issued by the Australian Taxation Office under Section 222AOE of the Tax Act.
If you get a Directors Penalty Notice YOU MUST ACT IMMEDIATELY TO AVOID PERSONAL LIABILITY. If you do nothing you will automatically become personally liable for the company’s tax debt.
If you absorb only one bit of information from this website this is the one to understand!!!!! Please CALL US NOW so we can advise you how to avoid personal liability.
What is a Directors Penalty Notice?
The ATO has the power to collect outstanding deducted taxes, being deducted amounts under the PAYG provisions, by making directors liable for a ‘penalty’ for the same amount as the unpaid tax. These provisions create a liability to the ATO in the name of the director. Each director of a company becomes separately liable for the full amount of the penalty. If a Director receives a Director Penalty Notice it requires the directors to take one of four specific actions within 21 days of issue or the director will be personally liable for the debt. That is, the company’s debt to the Australian Taxation Office will become a personal debt of the directors.
The actions a director can take to avoid liability are:
- Pay the debt in full;
- Enter into an instalment arrangement to repay the debt;
- Appoint a Voluntary Administrator; or
- Appoint a Liquidator.
The 21 days is a strict time limit. The ATO has no discretion to extend the period.
Problem Areas
Director Penalty Notices do not have to be served in the same way as legal proceedings. The ATO only needs to give notice and this can be done “by leaving it at, or sending it by post to, an address that appears from [ASIC or ATO] documents to be, or to have been within the last 7 days, the person’s place of residence or business”.
Directors and their advisors need to ensure that address details are up to date, or the notice may be issued and expire without the director even being aware of it.
The 4 choices are actually more limited than they appear. An instalment agreement may take longer than 21 days to negotiate and execute. Directors may not even be aware that this option exists until they receive the notice and then may not understand what it means. Further, there is no certainty that the ATO will accept any proposal made by the company.
What should you do?
Act immediately! If the company is solvent, it should pay the tax. Directors of companies that cannot pay the tax usually decided to appoint a liquidator, by way of Creditors Voluntary Liquidation, or a Voluntary Administration. Either can be done quite quickly, even in one day if need be.
As this is a potential minefield for directors we strongly recommend you CALL US immediately.
