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I have a directors penalty notice – what can I do?
Company Directors Beware
A letter turns up at your home address from the ATO. The tax assessment you may have disagreed with will be the directors’ personal responsibility in 21 days of the date on the letter.
First the warning so you are forearmed.
Any director of a company that is struggling to pay its ATO tax debts needs to be wary. If you can’t pay, then it is important to act now to start managing the outcome before the ATO start on you. Right now the ATO is coming down hard. The aggressive approach now extends to small and medium businesses.
Directors of insolvent or potentially insolvent companies may have seen the recent announcement in the Federal Budget that extra cash and powers have been allocated to countering illegal “Phoenix Activity”.
Sounds like a good idea for the government but a review of the detailed budget papers reveals a different agenda and target. The budget does provide a definition of fraudulent phoenix activity: “which involves a company intentionally accumulating debts to improve cash flow or wealth and then liquidating to avoid paying the debts”. But the effect of the proposed legislation is to make directors liable for unpaid PAYG and Super without notifying them and giving the current 21 days. The proposed legislation may also be retrospective to 1 July 2011. That means directors may be made liable for GST and super unpaid since then.
Right now, the Australian Taxation Office has the ability to issue Director Penalty Notices for unremitted PAYG under Section 222AOE of the Income Tax Assessment Act. The effect of such notice expiring after 21 days of its issue is that those directors who receive the notice become personally liable for the unpaid PAYG liability of the company.
As well the Office of State Revenue have the ability to issue an equivalent Director Penalty Notice under Section 47B of the Tax Administration Act. The State Revenue notices have the same time-frames, impact on directors and options available to avoid personal liability as the ATO’s Director Penalty Notice. To ensure you can respond in time, it is critical for directors of a company to update their personal and business contact addresses on ASIC’s records if they move. This is so any notice goes to your current address and so you can respond by either:
- Paying the assessment/debt;
- Entering into a formal written payment arrangement in respect of the assessment/debt;
- Obtaining a waiver in respect of the assessment/debt;
- Cause the company to enter into voluntary liquidation; or
- Cause the company to enter into voluntary administration
If you have received a Directors Penalty Notice from the Australian Taxation Office it means that they have become tired of asking for payment and are taking actions that will affect you personally, as well as your business.
A Directors Penalty Notice effectively makes you personally liable as a Director for the PAYG debt within 21 days of the date of the notice.
With the issuance of a Directors Penalty Notice the Australian Taxation Office has determined that the business cannot pay the tax. The ATO then has the power to make the Directors personally responsible for PAYG debt.
Now the good news…
If you have received a Directors Penalty Notice we strongly recommend that you contact Triple R today. We will chat with you about a strategy that is best for you.
When the Australian Taxation Office has finished asking nicely for payment they begin to take action which usually means they will chase you through the courts for their money or sometimes simply take it from your accounts via their ‘administrative’ authority.
Find out more by reading our page on How to negotiate with the ATO. If you are unsure about your relationship with the ATO and you have received any demands or documents that concern you, Triple R can devise strategies to deal with your problems, along with analysing your business challenges and find real solutions which are effective immediately.