The Australian Taxation Office (ATO) has resumed debt collection activities after a relatively quiet period during the COVID-19 pandemic. Thousands of company directors have been warned that they must actively manage their business debt or face ATO action.
Following a series of natural disasters across Australia and the outbreak of the COVID-19 pandemic in 2020, the ATO granted nearly 13 million lodgement and payment extensions. According to CPA Australia, the Australian Taxation Office (ATO) had $32 billion in collectable debt at the end of February 2021. The vast majority were small businesses.
Working with the ATO to manage debt is critical for businesses with debts over $100,000. According to a bill amendment passed in 2019, the ATO now has the authority to report tax debt to credit reporting agencies, which can significantly affect businesses’ future operations.
All about the Director Penalty Notice
A company director has a legal obligation to ensure that the company’s corporate governance obligations are met. A director penalty notice is a notice sent by the ATO to a company director if the company fails to comply. In such cases, the director is personally liable for the unpaid balance.
What are these liabilities?
A company with employees is liable for PAYG and superannuation guarantee obligations, among other liabilities. PAYG refers to an employer’s obligation to deduct amounts from employee paychecks.
The employer is required to withhold a portion of the wages paid to employees for tax purposes. The superannuation guarantee is the minimum amount of money that must be paid to employees for their retirement.
If an employer cannot pay the superannuation guarantee on time, they may be required to pay the SGC. The SGC is made up of any shortfall in superannuation guarantee amounts and interest and administration fees.
Furthermore, if a company fails to meet their requirements, resulting in unpaid amounts, the ATO will seek to collect these amounts from the company. It may also issue a penalty notice to the director. Before it can begin recovering unpaid liabilities, the ATO must first issue the director penalty notice.
Types of notices
The ATO must first issue a DPN before recovering any director penalties. DPNs are classified into two types; the first is a standard notice in which the director is warned. They then have 21 days to take action in order to avoid liability. An automatic personal liability notice is the second type of notice, a lockdown penalty notice. It takes effect the moment the ATO serves it on the director.
In order to avoid disclosure and the issuance of DPNs, it is critical to engage with the ATO as soon as possible in relation to any debt obligations.
Here’s more: https://www.ato.gov.au/General/Paying-the-ATO/If-you-don-t-pay/Disclosure-of-business-tax-debts/
What happens if you can’t pay?
The good news is that if the company owes less than $100,000, it can set up a payment plan that allows them to pay in instalments. They must file activity statements and tax returns on time, even if they are unable to pay by the due date.
This will prove to the ATO that the party is aware of its obligations and is doing everything possible to meet them. They may suggest a payment plan:
- via Online services for business external Link and choosing Accounts and payments then payment plans
- by phoning our automated phone service on 13 72 26
- through your registered tax agent or BAS agent who can use online services to enter a payment plan on your behalf
Here’s more:
- https://www.ato.gov.au/general/paying-the-ato/help-with-paying/
- https://www.ato.gov.au/general/paying-the-ato/if-you-don-t-pay/
Source: https://www.ato.gov.au/Tax-professionals/Newsroom/Lodgment-and-payment/Director-penalty-notices/ ; Link 2
Keep up to date with our stories on LinkedIn, Twitter, Facebook and Instagram.
