Its been a hard slog the last few years for anyone trying to manage a business. Between the fires, floods and Covid-19 pandemic, many small and large business owners are thinking what could possibly be next on the horizon which might cause their doors to shut.
Well, we can tell you: it’s the Australian Taxation Office.
1. The ATO Has Woken From Its Hibernation
As at 30 June 2021, the ATO’s debt book jumped by 77.6% to $34.1billion, with small business taxpayers accounting for the majority of the overall debt book at 62.6%, or a whopping $21.4billion.
It is anticipated that the final reports for EOFY 2022 will see that upwards trend continue. The difference going into financial year 2022/2023 compared to the previous 2 financial years, is that the ATO is on a self-declared mission to recoup as much of the collectable debt as possible.
The ATO has commenced actively pursuing those debts, most notably issuing a first tranche of 50,000 Director Penalty Notices addressed to directors at their home address. The letters warn of the personal consequences on directors for their company’s non-compliance of tax obligations.
2. Directors Have A Target On Their Back
The best way to avoid attracting unwanted attention from the ATO is to be proactive and ensure that the company’s reporting is accurate and meets all its relevant deadlines. Answering your accountants’ questions promptly and returning the calls of your bookkeeper are basic everyday tasks which will help manage the company’s affairs.
However many directors, usually sole directors, have little understanding of a director’s duties under the Corporations Act. We also find that they have little insight into the company’s overall financial position and have been treating company funds as a personal bank account (this is why the accountant has been calling!). Add in late lodgements and tax arrears with accruing interest, the seriousness of the situation is not fully appreciated by the director, even upon receiving a Director Penalty Notice.
We are hearing reports that many sole directors try to simply walk away from their business, thinking that closing up shop is a quick and easy way to make the pain go away and that the Notice will simply ‘dissolve’.
Unfortunately, no.
If an issued Director Penalty Notice is not complied with and the amount remains unpaid, within 21 days from the date of the Notice (NOT the date of receipt of the Notice), the Director/s may become personally liable for the debt and the ATO can and is commencing proceedings against directors personally.
This means your Home could now be in the firing line, as is the savings account for the children’s school fees. This is as about as serious as it gets.
3. Director Penalty Notice (DPN)
There are 2 types of DPNs:
i. A Non-Lockdown or Standard DPN
These are issued when a company has lodged the required returns in time, but has not yet paid the amount owing.
ii. A Lockdown DPN
A company has not lodged the GST / PAYG or Superannuation Guarantee Statement (SGC) returns, or not lodged within the required timeframe.
Both types only provide 21 days from the date of the Notice in which to act and the best of the limited options available is: pay the debt within the 21 days.
If you receive a DPN, the director should seek specialist advice from an accountant or insolvency practitioner immediately to understand what options are available, otherwise you might find yourself paying back those creditors personally.
If you need assistance, Enterprise Legal will work collaboratively with you and your financial advisors to assist to limit the damage whilst also ensuring your legal rights and interests are as protected as possible.
Contact EL’s Principal Legal Advisor – Disputes, Kirsten Woolston to discuss your options today:
☎️ | (07) 4646 2621
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