Company Directors have significant obligations and responsibilities required on them under Queensland law. Part of these responsibilities is ensuring that the company’s goods and services tax (GST), withholding tax and superannuation guarantee charges are paid correctly and on-time.

Where a company fails to perform its duties, the Australian Taxation Office (‘ATO’) will initiate action against the directors of a company personally to recover the amounts which the company failed to pay.

The two main ways the ATO will do this is by issuing a Director Penalty Notice (‘DPN’) or a Notice of Intended Legal Action (‘NILA’). These notices are important and must be addressed urgently when received by directors.

What is a Director Penalty Notice (DPN)?

A DPN is a legal notice issued by the ATO to company directors, holding them personally liable for unpaid:

3. Pay As You Go withholding tax (PAYG withholding)
4. Superannuation Guarantee Charge (SGC)
5. Goods and services tax (GST)

These amounts are called ‘director penalties’ can be recovered by the ATO if, as a director, you fail in your responsibilities to report and pay the company’s tax and superannuation obligations. The ATO is particularly focused on company’s who repeatedly defaults on formal payment arrangements with the ATO, avoid contact with the ATO or show increasing debt, you should expect to receive a DPN

There are two types of DPN’s, non-lockdown and lockdown DPN’s.

Non-Lockdown DPNs

A non-lockdown DPN is the most common form of DPN a director may receive. A director must take action within 21 days of the notice (the date written at the top of the notice) to avoid being personally liable for the company’s debt.

Don’t wait until the last minute! Liability may be avoided if a director pays the company’s debt, puts the company into liquidation or puts the company into voluntary administration before the deadline.

 Lockdown DPNs

A Lockdown DPN is a notification to a director that they are personally liable to pay a company’s tax debt. There is no ability for a director to avoid liability for a lockdown DPN.

Why? In 2012 the Queensland Government created laws ‘clamping down’ on tax avoidance. The new laws automatically make a director of a company personally liable if the company does not lodge and pay PAYG or SGC within 3 months after the due date for lodging the company’s returns.

What is a Notice of Intended Legal Action (NILA)?

 A NILA is a final warning the ATO will send a director before they commence court proceedings to collect a company’s tax debt directly from a director.

You may be able to negotiate a payment plan with the ATO depending on your circumstances if you respond quickly to any NILA that you receive. If you fail to address the NILA, the ATO will likely commence court proceedings against you and serve you with a Claim and Statement of Claim.

What Should You Do if You Receive a DPN or NILA?

Do not avoid or ignore an ATO notice! The adage is true; taxes are a certainty of life. Ignoring or leaving a DPN or NILA to the last minute will almost certainly have a bad ending, including court action, seizure of your assets or personal bankruptcy.

Depending on your situation, personal liability may be avoided, defences may apply or other protection may be available.

If you have received a DPN or NILA in the last 21 days, call our office to speak to a lawyer about what your options are to avoid being personally liable to pay the company’s debt.

The content of this publication is intended to provide a summary and commentary only. It is not intended to be comprehensive, nor does it constitute legal advice and has been prepared based on applicable legislation and case authority at the date of publication. You should seek legal advice on specific circumstances before taking any action.