The ATO has Changed the Rules on DPNs

It looks like the ATO has changed the steps that a Director can take to avoid personal liability when they receive a Non-Lockdown Director Penalty Notice (DPN). Specifically, they have removed the option to enter into a payment arrangement and added appointing a small business restructuring practitioner.

As a refresher, the ATO can issue a DPN to make a director personally liable for a penalty equal to the value of a Company’s overdue SGC, PAYG and GST.

There are two types of DPN’s:

• A Non-Lockdown DPN, which can be issued when a company has lodged its Business Activity Statements (BAS) and Instalment Activity Statements (IAS) within three months of the due date and Superannuation Guarantee Charge (SGC) statements within one month and 28 days after the end of the quarter and has not paid the debt.
• A Lockdown DPN, which can be issued where a company has not lodged their BAS, IAS, or SGC statements within the above timeframes and has not paid the debt.

The only option available to a Director who receives a Lockdown DPN is to pay the penalty, or seek relief under one of the statutory defences.

For a Non-Lockdown DPN, pre-COVID the ATO offered Directors the following options to avoid personal liability:

1. the company’s tax liability is discharged;
2. the company went into administration;
3. the company went into liquidation; or
4. the company entered into a payment arrangement

However, the ATO appears to have changed the options with recently issued DPNs. Going Directors the following options to avoid personal liability:

1. the company complies with its obligation to pay the unpaid amount to the ATO;
2. the company goes into administration;
3. the company appoints a small business restructuring practitioner (SBRP);
4. the company goes into liquidation.

This change appears to be a result of the decision in Clifton (Liquidator) v Kerry J Investment Pty Ltd trading as Clenergy [2020] FCAFC 5, that entering into a payment arrangement does not cause a tax debt which is due and payable to cease to be due and payable.

This change is a good one and will see more taxation debts dealt with at the time a DPN is issued. Too often entering into a payment arrangement is simply kicking the can down the road as it does not deal with the Company’s tax debt, just delays enforcement for period until the Company falls behind again and a new DPN is issued.

By pushing Directors to make a final decision, to either formally restructure their debts though SBR or Administration, or appoint a Liquidator, we will hopefully see less zombie corporations continuing to trade.