Recent amendments to the Commonwealth’s taxation legislation have significantly changed the regime relating to the ATO’s power to issue director penalty notices (DPN) to a director of a company.
The previous legislation made a director personally liable for a penalty if the company failed to meet a PAYG taxation obligation. The ATO could commence proceedings to recover that penalty, in an amount equal to the company’s outstanding liability to the ATO, if the director failed to cause the company to comply with its obligation after being served with a DPN issued by the ATO in respect of that liability.
The Tax Laws Amendment (Transfer of Provisions) Bill 2010 was passed by the Senate on 17 June 2010 and is awaiting Royal Assent.
Summary of changes relating to director penalty notices
- A DPN will now take effect from the date it is posted rather than the date it is received by the director.
- The period for complying with a DPN has been changed from 14 to 21 days. This means that the director has 21 days after the DPN has been sent to cause the company to comply with its tax obligation before the ATO can sue the director to recover the penalty.
- There are now only three ways the director can be relieved of their obligation to the ATO; these are by the company paying the tax obligation, appointing a voluntary administrator, or commencing winding up. The company entering into an instalment arrangement with the ATO no longer relieves the director of their obligations.
- If an instalment arrangement is entered into, the ATO cannot commence or take a further step in existing proceedings against a director seeking to recover the penalty while the instalment arrangement is in force.
- The changes also make it more difficult to rely upon the existing defence that the director did not take part in the management of the company as a result of “illness or some other good reason”. The director must now also establish that it would have been unreasonable in the circumstances to expect them take part in the management of the company.