Are your personal assets at risk?
Operating under a corporate structure does not guarantee that your personal assets are protected.
The Australian Taxation Office (“ATO”) can make you personally liable for overdue debts owing by a company including:
- Pay as you go (“PAYG”) withholding;
- Superannuation guarantee charge (“SGC”); and
- Goods and services tax (“GST”) (from 1 April 2020).
The ATO has statutory powers to issue Director Penalty Notices (“DPN”) which allows it to pierce the corporate veil and make directors personally liable for their company’s debts.
What happens if you become personally liable?
If a director becomes personally liable under a DPN you will need to pay the amount owing.
If a director is unable to pay the debt, the ATO may take steps to garnish funds from a director’s bank account or from their wages and/or make the director bankrupt.
Why are DPNs issued?
As a director you are responsible for making sure the company meets their payment obligations to the ATO.
If the company fails to meet its obligations the director becomes personally liable for a penalty equal to the unpaid amounts.
The ATO may then at their discretion issue a DPN.
Be Aware – Incoming and Outgoing Directors
The ATO can issue a DPN to an incoming director once the director has been in oﬀice for more than 30 days.
If a director resigns, the ATO can still issue a DPN for debts incurred, but not paid, while the person was a director of the company.
What do I do if I receive a DPN?
DPNs impose strict timeframes. Action must be taken within 21 days of issue of the notice to avoid personal liability.
The action taken will depend on the type of DPN you have received. There are two types:
Non-lockdown DPNs – Lodgements made
Where a company’s Business Activity Statements (“BAS”) are no more than three months overdue and the SGC statements have been lodged by the due date but the debts remain unpaid then generally three options are available to you to avoid personal liability:
- Pay the outstanding debts in full;
- Appoint an Administrator to the company; or
- Appoint a Liquidator to the company to wind up the company affairs.
Lockdown DPNs – Failure to lodge on time
If the company has failed to lodge BAS and SGC statements on time and the debts remain unpaid then the only option is to pay the debts in full.
What you need to do to avoid personal liability
- Keep informed about the company’s tax obligations;
- Lodge BAS and SGC Statements within the required timeframe;
- Make sure directors’ postal addresses are up to date in records maintained by the ASIC. DPNs are sent to directors’ personal addresses as recorded with ASIC;
- Undertake a review of your asset protection strategies, understand the risks and adopt measures to protect personal and business assets.
Seeking professional advice early is the key
If your company is having difficulty meeting its tax obligations or you have received a DPN, Pilot is here to assist. Please contact Bradley Hellen, Nigel Markey or your Pilot advisor on 07 3023 1300.