From time-to-time here at ATB Partners we get questions about Director’s Penalty Notices, which are issued by the Australian Tax Office. Quite simply – if you are issued with one of these, it’s a serious warning – but there’s no need to panic! There are ways to negotiate and get back on track.
By Paul Rattray
Many inexperienced or ‘new’ company directors take on the role with enthusiasm, but not always a full understanding of their responsibilities and obligations. And this is ok. Sometimes this can be a result of starting a business for the first time, or just simply joining a board for the first time, and, like many things, you learn and gain experience as you go.
Boards should recruit ‘fresh blood’ from time to time, but should always seek to retain those who have experience and deep knowledge too – the aim is balance.
The Australian Institute of Company Directors does offer courses regularly and these can be worthwhile if you want to learn or brush up on the skills and information you need as a company director.
However, ‘newbie’ or inexperienced directors should take note of a couple of important things regard to their financial obligations and responsibilities.
Firstly, the ATO has the power to commence recovery proceedings against directors under the DPN regime for unpaid company liabilities such as PAYG, GST and SCG (Super Guarantee Contributions) ) that remain unpaid or unreported after three months of becoming due.
Secondly, a new director of a company is liable for PAYG, GST, and SCG debts 30 days after they become director. The 30-day time frame is designed to give directors an opportunity to assess the company’s finances and resign if they choose to do so.
Yes, it’s heavy duty stuff. So when you sign on as a director, it almost goes without saying – you should do so wisely. Even if you’re not able to recite all of the directors’ responsibilities off the tip of your tongue – you should at least be aware of them, and also be aware of the inferred consequences within the ASIC regulations and Australian tax law.
With all of that said, right now, on the back of the Covid-19 pandemic and severe weather events in New South Wales, thousands of small businesses have taken a battering. It is perfectly understandable that in amongst all of the disruption and uncertainty some payments may have slipped.
A lot of businesses have been focused on accounting for Federal Government and State Government assistance too, such as jobkeeper. It has certainly not been ‘business as usual, and it’s entirely possible there are emissions or errors in accounting and tax.
The ATO, on the other hand has been operating ‘business as usual,’ which doesn’t mean they are not aware there could be payment gaps or anomalies, it simply means that they will proceed with what they have on file at their end. So if you find yourself on the receiving end of a Director’s Penalty Notice, what should you do?
The best counsel we can offer is to get professional tax and accounting advice as soon as possible to get a clear understanding of the situation you’re in. If you have received a Director’s Penalty Notice, don’t panic. It is wise to have everything looked at so you know exactly where you stand. When a tax debt exists according to the ATO, the onus is on the debtor to either prove to the ATO that it is an error, or to pay up.
So, with this in mind, the additional benefit of engaging a professional accounting and tax advisor is that you have a ‘go-between’ between your business, or yourself as a director, and the ATO.
This is important, because taxation agents and accountants have a thorough understanding of the rules and regulations and also speak the “same language” as the ATO. This makes communication easier and therefore negotiating a deferred payment or a payment plan more straight forward.
To be clear, the ATO is likely to also add fees to your original debt if you make a payment arrangement – but, a payment plan will take the immediate pressure off and give you peace of mind, and time.
On a final note, it is also wise for every business to have audit insurance – there are varying levels of cover and they are all very affordable. It’s not something covered in our fixed-fee agreements, but we are happy to discuss it with you.
The reason for his is that if you’re flagged by the ATO for an audit – for any reason – then audit insurance can pay for a number of things you will need – including professional help. Like all forms of insurance, you hope you never need it, you’re grateful to have it when you do.
If we can help, then please, by all means give us a call. We have more than 60 years combined experience and our passion is small business – we understand the nuances of your growth cycles, and the unique hurdles and challenges you face. Most of all, we know for sure, that the past couple of years have been pretty tough to navigate.
Reach out – we’re here if you need us.