Director penalty regime (DPN)

As a company Director you are responsible for ensuring that the company’s taxation affairs and governance are up to date by ensuring that taxation and super obligations are paid on time. If your company does not pay certain liabilities by the due date, the ATO can recover these amounts from you personally as a current or former company director.

What is a director penalty?

As a company Director you become personally liable for your company’s unpaid amounts of:

  • PAYG(W): tax withheld from staff wages;
  • GST: goods and services tax;
  • SGC: Superannuation guarantee charge which is unpaid superannuation including penalties

The amounts that you are personally liable for are called “Director Penalties” and the ATO can recover these debts by issuing a “Director Penalty Notice” or “DPN”.

Becoming a NEW Company director

Before you become a company director, check if the company has any unpaid or unreported PAYGW, GST and SGC liabilities. Once you are appointed as a company director you become personally liable for any unpaid amounts.

As a new Director you can avoid becoming liable for director penalties that were due before your appointment, if within 30 days of your appointment, you ensure the company does one of the following:

  • pays their debts in full for PAYGW, net GST from 1 April 2020 (including luxury car tax (LCT) and wine equalisation tax (WET) amounts) and SGC from 1 April 2012
  • appoints an administrator under section 436A, 436B or 436C of the Corporations Act 2001
  • appoints a small business restructuring practitioner under section 453B of that Act
  • begins to be wound up (within the meaning of the Corporations Act 2001).

Even if you resign as a company director within the 30 day period, you will still be liable for the company’s unpaid PAYG withholding, net GST or SGC liabilities that were due before your appointment.

Once you become a Director

Once you become a director, you are responsible for ensuring the company meets its PAYGW, net GST and SGC obligations in full by the due date.

If these obligations are not met, you become personally liable for director penalties, unless you take steps to ensure the company lodges and pays its:

  • PAYGW by the due date,
  • Net GST (as well as LCT and WET amounts) by the due date, and
  • Superannuation guarantee (SG) to employees’ superannuation funds by the due date – if that doesn’t occur, the company must lodge a superannuation guarantee statement and pay the resulting SGC liability.

More than one Director of a Company

If the company has more than one director, the amounts owed are likely to be the same for all directors.

This is because the company liability (what the company owes) and the director penalty liability are parallel in nature.

When the ATO recover director penalties they may do so equally from all the directors, depending on each director’s circumstances.

Your are no longer a Director

If you resign as a director of the company, you remain liable for director penalties for liabilities of the company that:

  • were due before the date of your resignation
  • fell due after your resignation if
    • for PAYGW and net GST (including LCT and WET), the first withholding event in the reporting period occurred before your resignation
    • for SGC liabilities, the date the charge became payable.

If you resigned as a director before:

  • the first withholding event in that period for PAYGW and net GST, you will also be liable for any unpaid liabilities for reporting periods that started while you were a director
  • the date the SGC became payable, you will also be liable for any unpaid liabilities for reporting periods that started while you were a director.

If you would like to discuss your obligations as a Director and any risks associated, please contact the team at HKS Russell.

t: + 61 7 3177 4120

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